Australia: Under the microscope: ATO scrutinises the paying of death benefits in light of superannuation reforms

Last Updated: 8 March 2018
Article by Rebecca James

The ATO is now considering aspects of recent superannuation legislation reform and has the payment of death benefits in its direct line of sight.

In brief

Following recent reforms, in this post transfer balance cap world, advisers must consider the practical implications and revise their strategies around the payment of superannuation death benefits.

What you need to know

  • It is important that the Fund's trust deed expressly allows the member to direct the trustee to pay the member's death benefit as a reversionary pension.
  • There should be a clear and specific member direction under the pension documents (without any discretion on the part of the trustee) to pay the pension to the nominated reversionary beneficiary on the member's death.
  • Pension documents should expressly permit the terms of the pension to be amended with the written consent of the trustee and the member.

Requirement to 'cash' death benefits

On a member's death, the Fund trustee is required to cash a deceased member's superannuation death benefits to the deceased member's eligible beneficiaries or legal personal representative (LPR) as soon as practicable. The death benefit cannot go back into 'accumulation phase'.

According to the compliance approach adopted by the ATO in PCG 2017/6, if a death benefit is paid as a complying pension to an eligible beneficiary and that pension is then commuted, the commuted amount must be paid pursuant to regulation 6.21 of the SIS Regulations, either as a lump sum, a complying income stream or a combination of both. The effect is that the commuted amount is essentially retested against the compulsory cashing requirements under superannuation law.

Thus, death benefits cannot be retained within the accumulation phase. This interpretation adopted by the ATO has significant implications for structuring death benefit payments in light of the transfer balance cap.

Reversionary pensions

A key benefit of ensuring that a pension is reversionary on the member's death is the availability of a 12 month period, usually commencing from the date the pension reverts, to restructure both the deceased member's and the reversionary beneficiary's superannuation benefits to address potential excess transfer balance tax issues.

Thus, a critical consideration is what is required to ensure a pension is in fact reversionary? Given the trustee's discretion under superannuation law to determine who receives the death benefit, a key issue is whether paying a reversionary pension constitutes an improper fetter of the trustee's discretion regarding the payment of benefits. This is addressed by ensuring a specific power in the trust deed is included.

This then gives rise to the further question of when is the proper time for the trustee to exercise its discretion when paying member benefits. For example, is the correct time for the trustee to exercise its discretion:

  • when the trustee agrees to pay the pension to the member, pursuant to agreed terms, including paying the pension to the reversionary beneficiary on the member's death; or
  • on the member's death?

The difficulty in this scenario is that there is no case law that has specifically considered this point of law, but only general trust law cases that consider what constitutes an improper fetter on the decision-making powers of a trustee.

The uncertainty in this context highlights the importance of ensuring the Fund's trust deed contains a specific power to allow the member to direct the trustee to pay the member's death benefit as a reversionary pension. Further, there should be a clear and specific direction under the pension documents (without any discretion on the part of the trustee) to pay the pension to the nominated reversionary beneficiary on the member's death.

Can an existing pension be converted to a reversionary pension?

There is also a question as to whether an existing pension can be amended prior to the member's death to vary the terms to ensure the pension becomes payable to a reversionary beneficiary on the member's death.

The ATO appear to accept that an existing pension can be varied to nominate a reversionary beneficiary before the member's death (refer to LCG 2017/3 at paragraph 13). As a matter of law, however, a variation to the terms of an existing pension would be on a much sounder footing if the pension documents contained a provision permitting the terms of the pension document to be amended with the written consent of the trustee and the member, and the variation is made in accordance with that amendment power.

Can a pension be made reversionary under a BDBN?

Finally, is it possible to make a pension reversionary under a valid and effective BDBN?

A BDBN generally directs the trustee as to whom to pay the deceased member's benefits, and may direct the form of the payment, such as a lump sum or pension (subject to complying with superannuation law and there being the requisite power under the trust deed). A BDBN would typically not be sufficient to vary an existing pension agreement with a nominated reversionary beneficiary, subject to the terms of the Fund deed.

It is generally best practice for the trustee and the member to enter into a pension deed setting out the terms on which the pension is payable to the member, and to include a clause permitting the pension to be varied, such that a reversionary beneficiary can be nominated under the relevant pension documents.

This approach also appears to be consistent with the Commissioner of Taxation's view in LCG 2017/3 at paragraph 15, which states that:

A BDBN, by itself, does not make a pension reversionary. If the governing rules or the agreement/standards under which the pension is provided does not expressly provide for reversion then a BDBN cannot alter this. The BDBN may have the effect of directing the trustee as to whom the death benefit is to be paid and the form, but it cannot turn a non-reversionary pension into a reversionary pension.

While the above excerpt is not a binding statement of law, the ATO's view in LCG 2017/3 is a timely reminder to review the Fund's trust deed and relevant pension documents where it is intended that a pension is to be reversionary on the member's death.


There is a number of technical and uncertain legal issues regarding the payment of superannuation death benefits, and the exercise of the trustee's discretion. An important factor in addressing these issues is to ensure the Fund's trust deed and pension documents contain the relevant provisions to avoid some of these issues and the uncertainties associated with the payment of superannuation death benefits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions