Home / Retiree / Accessing super / Reversionary pensions: What they are and how they work

Reversionary pensions: What they are and how they work

When you start a super income stream (such as an account-based pension), most super funds give you the option to nominate a beneficiary who will automatically receive your super pension when you die.

Although this doesn’t sound like a major decision, it can be a valuable estate planning tool to ensure your super goes to the person you want with the minimum fuss. It can be particularly important if your pension is being paid by your SMSF.

A reversionary pension is also a simple way to make things easier for your spouse when you die. Minimal paperwork is required before pension payments can continue and the income stream’s value won’t be counted under their transfer balance cap for 12 months, taking away some of the challenges and decisions at this difficult time.

Watch our video guide below, or continue reading for further detail on how reversionary pensions work.

SuperGuide members have access to an extended video which details how the rules can vary depending on the type of pension you have, how reversionary pensions are treated for the purpose of the transfer balance cap and some commonly asked questions. Learn more about the benefits of joining SuperGuide.

What is a reversionary pension?

If you are receiving an income stream (pension) from your super and you have not nominated a reversionary beneficiary, it stops as soon as you die and the remaining balance (for account-based pensions) or lump sum value (for non-account based pensions such as lifetime annuities) is distributed to your beneficiaries. This distribution is made in line with any binding nomination that is in effect or to the individual(s) decided by the fund’s trustee if there is no binding nomination.

Learn more about death benefit nominations.

As an alternative to this, most super funds and annuity providers allow you to nominate a reversionary beneficiary who becomes entitled to continue your super pension on your death. A reversionary nomination makes your wishes clear to the trustee of your super fund, is binding, and does not expire.

Retirement planning for beginners

Free eBook

Retirement planning for beginners

Our easy-to-follow guide walks you through the fundamentals, giving you the confidence to start your own retirement plans.

"*" indicates required fields

First name*
This field is for validation purposes and should be left unchanged.

With a reversionary pension, your existing super pension continues to be paid, but it reverts to your beneficiary. Provided your intended beneficiary is an eligible pension dependant at the time of your death, they will start receiving your pension quickly. 

Minimal documentation, most commonly a death certificate and marriage certificate, is required before the pension can revert. If your reversionary beneficiary is not your spouse, other evidence of their relationship to you will be required.

Once the reversion is confirmed, the pension belongs to your beneficiary and they have all the same powers you had to make changes to and withdrawals from the product, except the option to move back into the accumulation phase of super. This is because death benefits are subject to compulsory cashing rules and must be kept in a product that makes regular payments or be withdrawn from the super system. 

Who can receive a reversionary pension?

For a reversionary pension nomination to be valid, only someone classed as your death benefit dependant and eligible to receive death benefits as a pension under superannuation law can be nominated. You may only nominate one reversionary beneficiary at a time – it is not possible to nominate multiple people to split your pension.

This means at the date of your death your reversionary beneficiary must be:

  • Your spouse (de-facto or married, including same sex)
  • Your child under age 18
  • Your child aged between 18 and 25 who is financially dependent on you immediately before your death
  • Your child of any age who is permanently disabled as defined in the Disability Services Act 1986
  • Someone who is financially dependent on you 
  • Someone with whom you are in an interdependency relationship both at the time of nomination and the time of your death. (An interdependency relationship involves someone who lives with you and shares a close personal relationship where one or both of you provide for the financial and domestic support and personal care of the other.)

If your pension reverts to a child who is not disabled, the remaining value must be cashed as a lump sum when the child turns 25.

Need to know: Some super funds only allow you to nominate your spouse as the beneficiary of a reversionary pension. It’s sensible to talk to your super fund and check its rules on who can be a reversionary beneficiary before you make your nomination.

How to make your nomination

For account-based pensions

Legally, you can nominate or change your reversionary beneficiary at any time, but your fund’s trust deed may require the nomination to be made when you first open your pension account. If you have an SMSF, check your deed for the specifics and consider updating it if you need more flexibility.

If you have already started a pension without a reversionary beneficiary and your fund does not allow nominations to be added to existing accounts, you can consider transferring your balance into the accumulation phase and then starting a new pension. This will permit you to make a reversionary nomination for your new account.

Need to know: If your account-based pension was started prior to 1 January 2015 it is critical to seek advice before closing the account. Pre-2015 pensions are assessed differently for the purposes of Centrelink benefits including Age Pension, the Commonwealth Seniors Health Card, and aged care fees. Transferring to the accumulation phase to start a new pension could reduce your entitlements or increase your fees.

For annuities and lifetime pensions

Any reversionary nomination must be made when the income stream starts. When you purchase an annuity or lifetime pension, the provider’s application forms will allow you to make your nomination. Usually, the beneficiary can only be your spouse. This is because the provider is agreeing to pay income for life to you and your spouse if you nominate them. If income for life was to be paid to a child or other beneficiary, who is expected to live much longer, the annual income payment that could be provided would be very low since your lump sum investment would be spread over many more years.

If you are entitled to a defined benefit pension from your super fund, the trust deed generally specifies how and to whom any reversionary pension will be paid, and you are not permitted to make an alternative nomination. For example, some funds may pay two-thirds of the original pension to your spouse until their death.

Reversionary pensions and the Transfer Balance Cap

There is a cap on the amount you can transfer and hold tax free in the retirement or pension phase. The current standard cap is $1.9 million.

This cap also applies to reversionary pensions, so if a beneficiary becomes entitled to this type of pension, they need to ensure it does not take their retirement phase super assets over their cap. Note that everyone who has previously commenced a pension has their own personal cap, which is often different from the standard cap that applies to those starting a pension for the first time. You can see your personal transfer balance cap (TBC) via myGov through the linked ATO service. If a child will be receiving the reversionary pension, modified TBC rules apply.

Supercharge your retirement

SuperGuide newsletter

Get pension and retirement tips and strategies with our free monthly newsletter.

"*" indicates required fields

First name*
This field is for validation purposes and should be left unchanged.

Learn more about modified transfer balance cap rules for children on the ATO’s website. Scroll down to ‘Child recipients of a death benefit income stream’.

To allow reversionary beneficiaries time to get their super assets in order and avoid breaching their TBC, the value of a reversionary pension is not added to the beneficiary’s transfer balance account until 12 months after the fund member’s death. 

The amount that is added to the recipient’s transfer balance account is determined based on the type of pension, as shown below: 

  • Account-based pensions – the balance of the account on the date of death
  • Annuity – the commutation value on the date of death (amount that could be cashed as a lump sum)
  • Capped defined benefit – the special value, defined as 16 times the annual payment the beneficiary is entitled to at the date of death.

Good to know

If a defined benefit reduces in value after payments commence, your fund may make an adjustment to your beneficiary’s transfer balance account to compensate.

For example, some schemes pay 100% of your original pension to your surviving spouse for a few months and then reduce payments to 75% of the original level. In this case, a debit of 16 times the reduction in annual payment can be made to your spouse’s transfer balance account to recognise that they will be receiving a pension of a lower value. More information is available on the ATO website here – scroll down to the heading ‘defined benefit income streams’.

Some beneficiaries may need to take action to avoid exceeding their cap. This could be:

  • Commuting some of their own pension back to accumulation phase
  • Cashing a portion as a lump sum to make ‘space’ for the addition of the reversionary pension, or
  • Choosing to commute some or all of the reversionary pension to a lump sum.

The 12-month delay before reversionary pensions affect the recipient’s transfer balance cap is a key advantage of this type of beneficiary nomination. If a beneficiary is not nominated as a reversionary recipient but chooses to take death benefits as an income stream, then the value is instead added to their transfer balance account immediately when the income stream starts.

Reversionary pension vs binding death benefit nomination

One of the benefits of a reversionary pension is the automatic nature of the change in recipient, with the fund trustee not required to make a decision about the benefit other than confirming your nomination. A binding death benefit nomination (BDBN) on the other hand, involves stopping the current super pension. The fund trustee must then decide whether to start a new pension for the nominated beneficiary or pay a lump sum, usually by asking them what they prefer.

In addition, reversionary pensions are rarely challenged by other potential beneficiaries and most legal experts see them as taking precedence over a BDBN. 

BDBNs are sometimes challenged in court and if they are not executed properly (such as being witnessed correctly), they can be overturned in favour of other beneficiaries.

Need to know

Deciding between a reversionary pension and a BDBN is a complex decision that can have a significant impact on both your nominated beneficiaries and your SMSF if you have one and are receiving your super pension through it.

You should always seek help from professional legal and financial experts who are experienced in estate planning before making this type of decision – particularly if your death benefit is large or your financial affairs complex.

Learn more about choosing between a BDBN and a reversionary pension.

Tax on death benefit pensions

Death benefit income streams are taxed in the same way regardless of whether the recipient was a reversionary beneficiary or actively chose to take the death benefit as a pension/income stream.

The rate of tax varies based on the age of the deceased and the recipient and the tax components that make up the payment

Any tax-free component is always paid tax free.

The taxed element of any taxable component is tax free if the deceased reached age 60 prior to their death and/or the recipient is aged 60 or more. If the pension is a capped defined benefit, tax applies to 50% of any income above the defined benefit income cap ($118,750 in 2024–25) at marginal rates. If both the deceased and the recipient are under age 60, marginal rates of tax apply with a 15% tax offset. 

The untaxed element of any taxable component attracts marginal tax rates with a 10% offset if the deceased reached age 60 prior to their death and/or the recipient is aged 60 or more. If both the deceased and recipient are under age 60, marginal tax rates apply with no offset.

Your super fund can tell you the tax components that make up your benefit.

Learn more about tax on death benefits.

SMSFs and reversionary pensions

Reversionary pensions can be an important estate planning tool when used in conjunction with an SMSF. It provides certainty that payment of your existing super pension will automatically revert to your desired beneficiary, without the fund trustee having any input into the decision.

It’s important to note, however, that not all SMSF trust deeds provide for a reversionary pension option or give trustees the necessary powers to pay this type of super pension. You need to carefully check the wording of the current trust deed and governing rules of your fund to determine what options are permitted when it comes to the payment of death benefits and whether you can nominate a reversionary beneficiary.

Another detail to check is whether a reversionary pension nomination will be given priority over a BDBN by the fund trustee, as not all SMSF trust deeds and governing rules make this explicit. A good trust deed should ensure your reversionary death benefit nomination is valid, effective and cannot be ignored or overruled by the fund trustee after your death.

What if your reversionary pensioner dies or the relationship changes?

If the person you have nominated as your reversionary beneficiary dies or your relationship changes, such as if you separate or divorce, they can no longer continue your pension after you pass away.

In this situation you can cancel your reversionary nomination and choose an alternative beneficiary. If there is another person who qualifies to receive a reversionary pension, you may choose to make a new reversionary nomination if you wish. As described previously, you may need to close your existing pension and start a new one to make this possible. Alternatively, you can make a binding or non-binding nomination in favour of any person eligible to receive your super death benefits or your Legal Personal Representative who will distribute your estate according to your will.

Learn more about death benefit nominations.

If the person you have nominated as a reversionary beneficiary is not eligible to receive your death benefit as a pension at the time of your death, then the nomination cannot be followed. If you have an alternative binding nomination, the trustee will pay your benefit as instructed in that nomination. If you do not have an alternative binding nomination, the trustee will decide the most appropriate distribution of your benefit according to your personal circumstances. 

Common questions about reversionary pensions

Reversionary pensions can be confusing, so we’ve addressed some common questions. Many of these questions come from our quarterly member Q&A webinars.

Q: I am currently 59, semi-retired, and am the sole director of the Corporate Trustee of my SMSF with a balance of around $850,000 in shares and cash. I have been receiving a reversionary pension since my husband died. I am finding the paperwork required to maintain my SMSF is a little overwhelming. I have been told when I turn 60 next year (August) I could cancel the reversionary pension, rollover a lump sum from the SMSF to an Industry Super Fund, then draw an allocated pension until my preservation age of 67, and wind-up my SMSF. Subject to no rule changes between now and then, do you see a flaw with this plan?

A: Before I make any comments on this particular query, I’ve got to say, Janelle, I think you’re best off getting specific personal advice on this particular issue. The question you’re asking here has a lot of personal information that could affect the outcomes. So, the comments that I will make now are pretty much general in nature. What I want to do is go through a summary of the key issues I feel that you need to cover off, and probably by seeking some advice if you think it’s necessary. So please, what I suppose I’m saying is I can’t give you specific advice, but I can take you through what I believe are the key issues.

So first of all, check your SMSF trust deed and check the existing paperwork in place for the reversionary pension that you are in receipt of. You need to check both those documents, the trust deed and the pension paperwork to see if there’s any fund or any pension specific rules that need to be followed. Some estate planning professionals, if they were involved in setting this up for you, they put in place specific rules that need to be adhered to.

Some of the lawyers that I’ve worked with in the past for some clients have particular pension rules. For instance, you can’t commute a pension until an event occurs. I’m not saying you have that. You just need to check the pension documents and trust deed documents for any fund or pension specific rules that we have to follow.

Second of all, you can stop, you can commute (so cease) a reversionary pension. But once you do that, the entire balance of that pension needs to leave the superannuation environment. A reversionary pension is essentially a pension payable on the death of a member who was already in pension phase. For example, say I take a pension from my fund and when I set up that pension, I nominated my wife to be my reversionary beneficiary. So, on my death, my pension continues to be paid to my nominated reversionary beneficiary, my spouse.

Now, if my spouse decides she no longer wants that pension, remember, it’s still a death benefit. So, death benefits can’t stay inside the accumulation account of my spouse / my dependent there. She can stop my pension so long as she either withdraws that amount out of super and puts it in her own name, or if she stops the pension, rolls it over to another fund where she immediately starts a new pension in the new fund.

So, I just want to be clear here. You are allowed – deed permitting and pension paperwork permitting – to commute or stop a reversionary pension, so long as you either roll it over to another fund and start a new pension or you take it out of the superannuation environment.

Now, you’ve mentioned in your question that you’re waiting to age 60 through that. I’m not aware of any restriction for doing this prior to age 60. And look, why I say that is I know you’re saying you’re currently 59 and you’re 60 next year in August. Look, it may be that you get some advice around if you want to do that before age 60. You’re not taking the money that is yours. It’s a reversionary pension. It’s a death benefit of your spouse. You are allowed access to those money. So age 60 may not necessarily be the issue that we’re referring to here.

The last point I make is in your question, you said you have a preservation age of 67. The maximum preservation age (based on current rules) is actually age 60. So, you can’t have a preservation age of 67. That might be what could be causing you some confusion.

And if that is the case, remember that you can do things that you’re looking to do, and you can maybe even do it sooner than you expect. Just go off and get some advice around the pros and cons of that, and whether there’s anything within your existing fund that may restrict it. I hope that helps. That question that you sent through is quite specific to your position, but hopefully that does give you some idea on what you can and can’t do.

When it comes to the last point around winding up your SMSF, that can be a little bit daunting. I always recommend the involvement of a professional. When doing that, have a look at our guides, How to wind up an SMSF? and the second article, a little bit older, but still relevant, Had enough of your SMSF, what are your options?

That might give you some more detail around the wind up process. I hope that helps with your question.

A member without a reversionary pension has passed away. The surviving member wishes to take over the pension (per the current death benefit nomination). That is, he wants the pension to revert to himself.

The fund’s trust deed sets the boundaries for the terms of the death benefit nomination which is authorised by the deed. To be consistent with the trust deed any binding death benefit nomination must stay within those boundaries otherwise it may be considered invalid.

If a member was in receipt of a non-reversionary pension it comes to an end on the death of the member. If the deceased member has nominated someone else who is a member of the fund to receive their death benefit, they must qualify as a dependant under the superannuation law. If that is the case, and if the trust deed permits, it will be up to the member to request the commencement of a new pension.

Paragraph 29 of Taxation Ruling 2013/5 says that:

Death of a member

29. A superannuation income stream ceases as soon as a member in receipt of the superannuation income stream dies, unless a dependant beneficiary of the deceased member is automatically entitled, under the governing rules of the superannuation fund or the rules of the superannuation income stream, to receive an income stream on the death of the member. If a dependant beneficiary of the deceased member is automatically entitled to receive the income stream upon the member’s death, the superannuation income stream continues.

As it would appear from your question that there is no automatic entitlement to receive the pension on the member’s death as it is non-reversionary, the recipient would need to start a new pension.

A death benefit pension, as the name suggests, is a pension payable from a superannuation fund after the death of the fund member.

At the time of the member’s death the beneficiary, who is usually the surviving spouse or a death benefits dependant of the deceased, will decide how they wish to receive the death benefit. They may decide to receive the death benefit as a lump sum or pension or a combination of the two. If they decide to receive a pension it will be referred to (technically) as the death benefit pension because it has arisen after the death of the member.  

In contrast, where a fund member has commenced a pension in the fund it may be a reversionary or non-reversionary pension. If the member has decided to commence a pension that pays a reversionary pension to their surviving spouse on the member’s death, the surviving spouse will become automatically entitled to receive the pension. The amount of the pension received by the surviving spouse will depend on the rules of the fund or the pension agreement. For example, if the pension is 100% reversionary then the surviving spouse will receive a continuing pension equal to the amount being received by the deceased at the time of their death and on the same terms and conditions as set out in the rules of the fund or pension agreement. If the pension is 75% reversionary then the surviving spouse will receive 75% of the amount being received by the deceased at the time of their death and on the same terms and conditions as set out in the rules of the fund or pension agreement. Depending on the rules of the fund or the pension agreement, it is possible to convert the capital that is supporting the pension in whole or partially to a lump sum.

Just to clarify, I assume that you are referring to the remaining balance of the deceased person’s pension as the ‘asset’.

If that’s the case then the reversionary pensioner, the person receiving the pension, becomes entitled to a reversionary pension which has a balance equal to that of the deceased person’s pension at the time of their death.

Or is there any point at all in having a death benefit nomination if the only superannuation dependent (as defined) is their spouse (i.e. other than their spouse they only have adult, non-financially dependent children)?

The transfer balance cap relates to amounts you have used in your super fund to commence your pensions since 30 June 2017 including those in place on that date. If the combined amounts that you have used to commence the pensions exceed your personal transfer balance cap, then the ATO will require you to reduce any excess either by removing it from super or putting it back into an accumulation account.

Your personal transfer balance cap does not take into account any pension payments you have received, nor does it take any investment gains or losses that are made to your pension account. Therefore, the balance of your pension accounts may exceed your personal transfer balance cap if your fund has a successful investment performance.

For example, assume you commenced your first pension with $1.9 million in the 2023–24 income year then withdrew $100,000 as a pension payment and the fund earned $190,000 income. The amount you used to commence the pension of $1.9 million would be added as a credit to your transfer balance account. The withdrawal of your pension and the income earned by the fund are not counted for transfer balance account purposes even though your pension account balance has now increased to $1,990,000 ($1.9 million less $100,000 plus $190,000).

Whether you decide to make the pensions you and your wife are receiving reversionary or subject to a binding death benefit nomination depends on other factors, but they do have a link to both your transfer balance accounts. This can be illustrated as follows:

Assume you and your wife each commenced a pension with $1.9 million in the 2023–24 income year when the transfer balance cap is $1.9 million. In three years, the balance of both your pensions has grown to $2 million because of successful investments.

The amount counted for transfer balance cap purposes for each of you would remain as $1.9 million.

Then let’s assume that one of you was to die.

If the pensions were reversionary, the balance of the pension payable to the deceased person would be paid as a reversionary pension to the surviving spouse and counted against their transfer balance cap. The balance of the surviving spouse’s transfer balance account would then be $1.9 million, the amount used to commence their pension in 2023–24 and the balance of the deceased spouse’s pension which is $2 million. The amount counted against the surviving spouse’s transfer balance cap is now $3.9 million which exceeds their transfer balance cap. The surviving spouse is now faced with a decision of what should be done.

There are many options. One could be to commute their pension and transfer it to their accumulation account and partially commute $100,000 of the reversionary pension which would be drawn from the fund as a lump sum. The remaining $1.9 million would continue to be paid as the reversionary pension. The reason for withdrawing the lump sum from the reversionary pension is that death benefits paid to a surviving spouse that remain in the fund can only be paid as a pension and cannot be credited to the surviving spouse’s accumulation account. Another option could be for the surviving spouse to continue with the pension that they commenced in the 2023–24 income year and commute the reversionary pension to a lump sum. For transfer balance cap purposes, the reversionary pension is not counted against the surviving spouse’s transfer balance account until 12 months after the death of the original pensioner.

This is the advantage of having a reversionary pension, as it provides up to 12 months leeway before it has to be commuted.  

If it is decided that the reversionary pension nomination is replaced by a binding death benefit nomination the surviving spouse may have the choice of commencing a death benefit pension. If the combined amount of the pension commenced by the surviving spouse in 2023–24 plus the amount used to commence the death benefit pension is excessive, the options available are similar to those available for the reversionary pension. However, the amount of any death benefit pension that is commenced will be counted against the surviving spouse’s transfer balance account as soon as the pension commences.

Upgrade your retirement with a SuperGuide membership

Unlock independent expert guidance to make your super last and boost your income in retirement.
  • Interactive tools and calculators give you power to plan
  • Step-by-step guides help you put plans into action
  • Discover best performing super and pension funds
  • Experts detail tips and strategies to boost your nest egg
  • Comprehensive super rules in plain language
  • Newsletters and webinars keep you on top of the current rules

Find out more


About the author

Related topics,

IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

© Copyright SuperGuide 2008-25. Copyright for this guide belongs to SuperGuide Pty Ltd, and cannot be reproduced without express and specific consent. Learn more

Leave a Reply