BDBN vs Reversionary Pensions in Victoria

Bernard was a member of an SMSF, and he received an account-based pension where his wife, Olivia, was nominated as the reversionary pension recipient. So, if he died, Olivia continued to receive his pension as he got it. Bernard, being the diligent man that he was, had also completed a BDBN that favoured his daughters.

Then Bernard died. So which one – the BDBN 0r the reversionary pension – was to take precedence?

The ATO reviewed this topic, asking: Does a reversionary nomination in an account based pension take precedence over a binding death benefit nomination (BDBN) or are the trustees bound by the BDBN following the death of the original pension recipient?

     There are many views on this circumstance, including from several legal sources that the ATO consulted. 

  1. The reversionary pension continues until such time that she dies, when the balance in Bernard’s account is paid out to his daughters as per the BDBN.
  2. The reversionary pension continues to be paid to Bernard’s wife Rebecca, and now belongs to her. When she dies, the benefits go to her beneficiaries, and Bernard’s daughters never see any money.

The reversionary element can’t override the trustee’s powers, which are in fact likely to stop the pension to the wife and pay the benefits as per the BDBN, and any contract is not able to be overturned since the trustee to obey the law or SMSF deed.

     The ATO’s final response:
‘Notwithstanding those observations, the ATO’s view is that a pension that is a genuine reversionary pension, that is, one which under the terms and conditions established at the commencement of the pension reverts to a nominated (or determinable) beneficiary must be paid to the reversioner.

It is only where a trustee may exercise its discretion as which beneficiary is paid the deceased member’s benefits and/or the form in which the benefits are payable that a death benefit nomination is relevant.’

From the ATO’s perspective, there are no real provisions related to this occurrence, which is why it is imperative that all of your documents point in the same direction.

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