Case study: Recontribution of death benefits?

Case study

• Jerry passed away at age 74 leaving a super death benefit of $400,000
• His wife Judy is 72 and the reversionary beneficiary of Jerry’s pension account
• Judy’s own pension account balance is $250,000.

Judy does not want the complexity of managing two pension accounts as she finds it overwhelming.

Under the super rules in force until 30 June 2022, Judy would have to continue maintaining two pension accounts or cash out Jerry’s death benefit.

Under the new super rules effective from 1 July 2022, Judy has another option. She can:

1. Open a new super account
2. Cash out Jerry’s death benefit of $400,000
3. Contribute $110,000 in the 2023 financial year into her super account, as work test rules no longer apply for people aged 67–75 for non-concessional contributions
4. Then trigger the bring-forward rule in the 2024 financial year and contribute the remaining $290,000 into her super account
5. Consolidate her own pension account with the new super account to form a brand-new single pension account, after the above contributions are made.

Judy now has only one pension account, which provides her with simplicity, ease of administration and possibe savings on multiple super administration fees.

Important things to consider:

• Ensure the pension annual minimum drawdowns have been met before consolidating accounts
• Ensure it meets the member’s estate planning needs
• If you have a high total super balance or have reached your transfer balance cap limit, you could be constrained in applying the above strategy
• You could also be constrained if the total value of the death benefit is much greater than your contribution caps.