Understanding Estate Planning – Binding Nominations and Reversionary Pensions

Wednesday, February 07, 2024

Binding nominations and reversionary pensions are two ways to ensure your superannuation is passed to your elected beneficiaries in an efficient and timely manner. It also keeps the money within the superannuation environment with the tax benefits of this. Without these legally binding directives, the choice of where your money goes to is at the discretion of the superannuation trustee.

Our Maher Digby financial planners explain the pros and cons of binding nominations and reversionary pensions - 2 efficient ways of passing your super to your beneficiaries quickly.

Reversionary pensions and binding nominations are crucial aspects of estate planning within the framework of Australian superannuation laws. These tools allow individuals to specify their preferred beneficiaries for their retirement investments, ensuring a seamless transition of assets and income payments to their loved ones upon their passing.

A reversionary pension is a valuable option for individuals who seek to transfer their superannuation investment immediately to their nominated beneficiary without the need for Superannuation Trustee approval. This can be particularly advantageous for ensuring a direct transition of investments and income payments to a spouse upon the original pensioner's passing.

It's important to note however, that having a reversionary pension is not always the best option, as it can lock in who gets the money when the original pensioner dies, and there are tax and contribution implications to consider.

A binding nomination as another option is a legally binding directive to the Trustee of the Superannuation Fund, specifying the beneficiary of your investment.

Both a binding nomination and a reversionary pension have the same government rules for who may be a beneficiary, including:

  1. Your Spouse
  2. Dependent child – either under 18yrs , or financially dependent and under 25yrs, or a permanently disabled child.
  3. Someone with which you have an “interdependency relationship”

However, a binding nomination provides an additional option for your superannuation monies to go to your Estate, to be managed according to the wishes in your Will by your solicitor. This option is commonly used where the investor has no dependants or wishes to disperse their superannuation in alignment with their will.

If your beneficiary is a child (within the rules) then it may be worth considering a Binding Nomination as this allows the additional option of a Lump Sum payout, in addition to the choice for leaving the investment as is and continuing Pension Payments to the child once the Trustee has agreed to the transfer.

In fact, you can have a Binding Nomination and a Reversionary Pension in place at the same time. One strategy could be having the binding nomination to the Estate and a reversionary pension to the spouse. In this case the pension would revert immediately to the spouse on your passing, but should your spouse pass away in a similar time frame, the investment then goes to the Estate rather than being administered separately by the Trustee of the Superannuation fund.

Without a binding nomination or a reversionary pension, the Trustee has discretion over the distribution of the monies, which can be a protracted process requiring additional time, paperwork and proofs.

While these options provide important benefits, they also entail considerations that warrant careful assessment. Therefore, it's advisable to seek professional financial advice from an experienced estate planning financial advisor to understand the implications of both options and choose the most suitable one based on individual circumstances and family needs.

For more Information contact Mark Digby at Maher Digby Securities Pty Ltd - Financial Advisors – AFSL No. 230559 – Ph: 075441 1266.  This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting an estate planning financial advisor.