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<\/p>\nIt\u2019s vital to know what is and what is not a death benefit pension because the consequences of not paying the minimum pension payment on the wrong one could have dire consequences, a leading adviser said.<\/p>\n
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Peter Johnson, director of Advisers\u2019 Digest, said if a member forgets to meet the minimum payment in a \u201cnormal\u201d pension, they will pay tax for that year and then recommence it. However, if they forget to meet the minimum payment on a death benefit pension, \u201cyou\u2019re gone\u201d.<\/p>\n
Johnson gave an example of an SMSF with two members in pension phase. One member passed away, and their pension reverted to the spouse.<\/p>\n
\u201cThe question is can the pension that reverted to the surviving spouse be put into accumulation at a later stage or must it then be paid out?\u201d he said.<\/p>\n
\u201cLet\u2019s have a look at the transfer balance cap rules. Say, we have Peter and Chloe who start a pension today, each with $2 million. They both have reversionary pensions. Peter dies and his pension automatically reverts to Chloe.<\/p>\n
\u201cA TBAR should be done straight away to give the date of death and the $2 million is moved over to Chloe. A TBAR has to be done because it\u2019s a reversionary pension and it shouldn\u2019t impact Chloe\u2019s transfer balance cap.\u201d<\/p>\n
Assuming Peter died in January 2026, Chloe\u2019s balance is going to go to $4 million on 1 January 2027.<\/p>\n
\u201cAt that point in time, Chloe will have a transfer balance cap of minus $4 million,\u00a0 so she\u2019s going to get a notice to commute money back to accumulation of $2 million, but she can\u2019t commute the death benefit pension, because the death benefit must be paid by way of a pension or cash lump sum,\u201d Johnson said.<\/p>\n
\u201cYou can\u2019t have a death benefit in accumulation, and if you have a death benefit pension, and you forget to pay the minimum, then that\u2019s it. It\u2019s got to come out.\u201d<\/p>\n
He said what should happen is that after Peter dies, Chloe has a pension with a balance of $2 million and Peter\u2019s pension is just moved to her so she ends up with $4 million in pension phase.<\/p>\n
\u201cThere\u2019s going to be a big spot of bother come the first of January. So, you take her personal pension account, the one that\u2019s not Peter\u2019s death benefit, and you commute that back to accumulation,\u201d he said.<\/p>\n
\u201cWhat I always suggest when it is a death benefit pension, is to set it up on monthly payments so they always make the minimum. If they don\u2019t make that minimum payment it might seem like it\u2019s only a small mistake and won\u2019t matter, but that\u2019s not how it works. It\u2019s a massive mistake.<\/p>\n
\u201cSo force them to do monthly repayments, then if they miss one, you can use the one-twelfth rule and you\u2019ll be OK.\u201d<\/p>\n
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Keeli Cambourne
\nMarch 27, 2026
\nsmsfadviser.com<\/p>\n","protected":false},"excerpt":{"rendered":"
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