Case study: Recontribution of death benefits?

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 now be able to take advantage of a recontribution strategy to hold the death benefits either in an accumulation account or in a single pension combined with their own benefits.

Previously, a surviving spouse aged between 67 and 75 who did not meet the work test was not allowed to make further non-concessional super contributions or take advantage of the bring-forward rule. As a result, the surviving spouse was often left with a restricted choice of maintaining multiple pension accounts or receiving a lump sum death benefit.

Learn more about the work test and the bring-forward rule.

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 had 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:

Open a new super account
Cash out Jerry’s death benefit of $400,000
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
Trigger the bring-forward rule in the 2024 financial year and contribute the remaining $290,000 into her super account
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 possible savings on multiple super administration fees.

Good to know: A recontribution strategy also converts the benefit to a tax-free component that will be tax free if adult children inherit it later. This presents important estate planning opportunities.

Learn about a super recontribution strategy and the taxation of super death benefits.

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.

About the author

Aakash Mehta

Aakash Mehta is a financial adviser and has been working in the financial planning profession for more than 7 years. He has an undergraduate degree in commerce, a post-graduate degree in international finance and a diploma in financial planning. His day-to-day work exposes him to real life financial planning issues around superannuation, retirement, insurance and estate planning, and he contributes to SuperGuide by writing case studies and articles on various financial planning strategies.