Show download pdf controls
  • Death benefit income streams – meeting minimum pension payment requirements

    Note: We have updated this article to clarify that this is in relation to reversionary pensions only.

    Generally a superannuation income stream ceases when the member dies. As a result, the requirement for the self-managed super fund (SMSF) trustee to make periodic superannuation income stream benefit payments comes to an end and we won't require a minimum pension payment to be made in the year of death.

    In contrast, where a dependant beneficiary receives a death benefit income stream automatically (as a reversionary pension), the original pension continues and the minimum pension payment requirements still apply. In addition the trustee also has the responsibility to ensure that the death benefits are cashed as soon as practicable (as part of the compulsory cashing requirements).

    Cashing a death benefit as a reversionary pension

    A number of questions have recently been raised by the SMSF sector around the interaction between compulsory cashing requirements following a member's death and the requirement to pay a minimum pension amount each year.

    Cashing a death benefit in the form of a reversionary pension only satisfies the compulsory cashing requirements as long as the interest continues to be cashed in that form. Therefore, if the pension ceases because the minimum amount hasn't been paid, the trustees may have contravened the Superannuation Industry (Supervision) Regulations 1994 (SISR).

    Where the underpayment is small, or the result of an error, the trustee may be able to self-assess whether they can apply the exception to treat the fund as having continuously paid the pension, despite the underpayment. If the exception can be applied, the fund has not breached the SISR.

    Preventing further contraventions

    Where a contravention has occurred, trustees need to act swiftly to prevent further possible contraventions by ensuring the death benefits can still be considered to be cashed ‘as soon as practicable’. This could be achieved by:

    • immediately cashing the benefit in the form of a new retirement phase income stream as soon as they become aware of the breach
    • cashing the benefit in the form of a lump sum (either as a single lump sum or as an interim and final lump sum)
    • rolling over the interest that supported the death benefit income stream pension to another complying super fund for immediate cashing as a new death benefit income stream.

    Note: these options are about preventing future contraventions of SISR. They won't remedy the breach that's already occurred for failing to meet the compulsory cashing requirements.

    As long as one of these actions is taken immediately, the Commissioner will accept the trustee is meeting on a go-forward basis the requirement to cash the benefits ‘as soon as practicable’ and will not therefore have further contravened the SISR. Failure to resolve the matter may have significant compliance consequences.

    We're currently reviewing all web content on this issue and will update it to ensure it reflects the messages above.

    See also:

    Keep up to date:

      Last modified: 24 Jul 2019QC 59673