In the recent decision of Re Narumon Pty Ltd  QSC 185, an SMSF reversionary pension nomination was upheld despite the trustee not being able to locate the pension documents.
While this was a great outcome for our client, it raises the question of what a trustee's obligation is when continuing to pay a pension to a nominated reversionary beneficiary, or otherwise paying a death benefit in circumstances where documentation is missing or incomplete?
Unfortunately, there is no universal answer, and each matter will depend on its own circumstances. However, where a trustee fails to properly deal the payment, the trustee is at risk of being personally liable for any loss to a beneficiary, as well as legal costs.
On the death of a member, there are two ways a death benefit can be paid as a pension:
- the pension automatically continues to the new recipient (a reversionary pension); or
- the trustee decides to pay a death benefit as a pension (a death benefit pension).
It is the first of these, where the trustee has no discretion, that is a reversionary pension.
If the trustee has a choice as to the recipient or the form the benefit takes, then the trustee is exercising their discretion, and the pension is not reversionary. In those circumstances, a trustee of an SMSF must ensure they exercise that discretion properly and in accordance with the trust deed.
Reversionary pensions are normally documented in the pension terms. So, without the pension documents, how does the trustee determine whether they must follow a reversionary nomination or whether they have a discretion in relation to the death benefit?
THE DECISION IN RE NARUMON
In Re Narumon we, along with the accountant adviser to the fund, undertook extensive searches for the original or copy pension documentation. We were unable to find the pension documentation, but, through conducting this search, we collected various secondary evidence to support a finding that the pension was in fact reversionary.
The factors that supported this finding included:
- the actuarial certificates, which made an assumption the pension was reversionary;
- the way in which the pension payments were calculated (due to the nature of the complying lifetime pension); and
- the written financial advice provided to the member about their options for a pension.
Importantly, the search did not recover any documents that suggested the terms or nature of the pension had changed. The Court therefore accepted that the member had made a reversionary pension nomination and required the trustee to pay the pension to the reversionary beneficiary as required by the SIS Regulations.
IS YOUR PENSION REVERSIONARY IF YOU CANNOT FIND THE PENSION DOCUMENTS?
The result in Re Narumon is very specific to the facts. If the pension had not been a lifetime complying pension, the result could have been different.
Where you have another form of pension (such as a market linked pension or account based pension), it is highly unlikely that a court would accept the pension as being reversionary if the pension documents could not be found. In particular, it would not be possible to show external independent evidence of the reversionary beneficiary nomination, as was the case in Re Narumon (where the pension payments were calculated on the reversionary beneficiary's life expectancy).
WHAT SHOULD TRUSTEES DO?
Without documentation that provides the trustee with certainty of the reversionary nomination, the trustee cannot continue to pay the pension to a reversionary beneficiary without potentially breaching its duties. This is because the trustee has a fiduciary obligation to the members of the fund, and the potential beneficiaries of the superannuation death benefit.
In circumstances where a member is still alive, but their pension documentation and reversionary nomination are missing, steps should be taken to address the missing documents. If this is done properly, it can result in saving significant money and time when the time comes to administer the member's estate.
Where a member has died, and the trustee is unable to locate the pension documents and reversionary nomination, extensive searches should be undertaken to locate the original documents, or other documents that support a finding as to what the pension terms were and whether a reversionary nomination existed. Legal advice should then be sought, as the trustee's obligations and responsibility to resolve the issue will vary depending on the particular circumstances of the case.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.