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The new super rules from 1 July 2022 give older Australians more flexibility when it comes to how they choose to hold the super death benefits of their deceased partner.
Depending on their personal situation, the surviving partner may decide to hold the death benefits either in an accumulation account or in a single pension combined with their own benefits.
Previously, the surviving spouse was often left with a restricted choice of maintaining multiple pension accounts or receive a lump sum death benefit.
Using the above case study, if Judy has a significant super balance of say $2,000,000 and Jerry’s death benefit pension is $2,500,000, she will possibly have more pension income than she needs if she continued running her pension alongside Jerry’s death benefit pension.
Let’s assume she then invests the surplus pension income every year in her personal investment account and also receives rental income from investment properties. Say she is taxed a marginal tax rate of 34.5% (including Medicare levy) on the income, this may not be tax effective for her.
In this situation, Judy could commute her own pension back to accumulation to limit that tax to 15% as the funds will be taxed at a concessional rate within the super environment and she won’t be forced to take a pension from it.