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  • Defined benefit income streams

    Some defined benefit income streams are treated differently for transfer balance cap purposes. This includes death benefit income streams that are also defined benefit income streams.

    Upon the death of a member who is receiving an income stream from a defined benefit fund, the income stream may automatically revert to a death benefit income stream. The death benefit income stream may also be a percentage of the member’s original income stream (a reversionary defined benefit interest).

    See also:

    • New transfer balance cap – defined benefits

    Examples

    Example 1:

    Jack had a reversionary super income stream valued at $1 million at the time of his death on 1 September 2015. Upon his death, the super income stream reverted to his sister who was in an interdependency relationship with him. Jill had commenced her own account-based income stream on 1 January 2015, valued at $1.7 million.

    At the end of 30 June 2017:

    • the value of Jack's reversionary death benefit income stream is $800,000
    • the value of Jill’s account-based income stream has reduced to $1.6 million.

    Jill has to take action to make sure she does not exceed the transfer balance cap.

    Jill partially commutes $800,000 of her account-based income stream on 1 July 2017, retaining it in the accumulation phase, and continues receiving the reversionary death benefit income stream valued at $800,000. Jill still has her original account-based income stream (now with a reduced value of $800,000) in the retirement phase, and has $800,000 in accumulation phase.

    On 1 July 2017, Jill starts to have a transfer balance account and a transfer balance credit of $800,000 arises for the reversionary death benefit income stream. A transfer balance credit also arises for Jill’s account-based income stream of $1.6 million.

    A transfer debit also arises on that day for the partial commutation of $800,000, bringing Jill’s transfer balance down to $1.6 million.

    End of example

     

    Example 2:

    Larissa commenced a super income stream on 1 October 2000. Larissa died on 1 January 2017. Larissa’s super income stream automatically reverts to her spouse Brad upon her death.

    At the end of 30 June 2017, the value of the reversionary death benefit income stream is $1 million.

    On 1 January 2018, Brad starts to have a transfer balance account and a transfer balance credit of $1 million arises. The credit occurs 12 months from the day that the reversionary death benefit income stream first became payable to Brad.

    The transfer balance credit is equal to the value of the reversionary income stream at the end of 30 June 2017 ($1 million) and not the value when the credit arises (1 January 2018).

    End of example

     

    Example 3:

    On 15 April 2018, Ivan dies. Upon Ivan's death, his super income stream reverts automatically to Sasha.

    The value of the super death benefit at this time is $1.1 million. Sasha’s transfer balance account will be credited with $1.1 million on 15 April 2019. This is 12 months from the day that the reversionary death benefit income stream first became payable.

    Sasha chooses to partially commute her own super income stream and transfers $700,000 to her accumulation account on 15 April 2019. This ensures her transfer balance account does not go above $1.6 million.

    Alternatively, Sasha could partially commute the reversionary death benefit income stream, but she would have to pay the commuted amount as a lump sum out of the super system because the death benefit can't be retained in accumulation phase.

    End of example

     

    Example 4:

    Terence commenced a non-reversionary super income stream worth $1.4 million on 1 October 2000. Terence died on 1 January 2017. At the time of his death, he also had $350,000 in an accumulation account.

    Aurelia is Terence's spouse and the only beneficiary. She is paid a non-reversionary death benefit income stream which commenced on 15 January 2017. It is made up of Terence's income stream, valued at $1 million when he died, and the $350,000 in his accumulation account.

    At the end of 30 June 2017, the value of her death benefit income stream has reduced to $1.3 million.

    On 1 July 2017, Aurelia starts to have a transfer balance account, and a transfer balance credit arises for the death benefit income stream of $1.3 million. This means that, on 1 July 2017, Aurelia is under her transfer balance cap of $1.6 million.

    End of example

     

    Example 5:

    Nathaniel commences a non-reversionary super income stream worth $1.4 million on 1 October 2017. Nathaniel dies on 1 January 2018. At the time of his death, the value of his super income stream is $1.3 million. Nathaniel has no other super interests.

    Malena is Nathaniel's spouse and only beneficiary and is entitled to all of his remaining super interest. During the period between Nathaniel's death and when the death benefit income stream starts being paid to Malena, investment earnings of $1,000 accrues.

    The value of the death benefit income stream, when it commences on 15 June 2018, is $1,301,000.

    On 15 June 2018, Malena starts to have a transfer balance account. A transfer balance credit of $1,301,000 arises for the death benefit income stream.

    Malena can start another super income stream, valued up to $299,000 without exceeding her transfer balance cap.

    End of example

    See also:

    • Transfer balance cap
    • LCR 2017/1 Superannuation reform: defined benefit income streams – pensions or annuities paid from non-commutable, life expectancy or market-linked products
    • LCR 2016/9 Superannuation reform: transfer balance cap
    • LCR 2016/10 Superannuation reform: defined benefit income streams – non-commutable, lifetime pensions and lifetime annuities
    • PCG 2017/6 Superannuation reform: commutation of a death benefit income stream before 1 July 2017
      Last modified: 26 Sep 2018QC 54352