Be clear on TBA pension impact

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Trustees and advisers still may not be completely clear as to how the decision to make a pension reversionary or not will affect their transfer balance account (TBA) with regard to the commencement date of the income stream subsequent to the original recipient’s death, according to an SMSF specialist.

SMSF Alliance principal David Busoli highlighted the importance for practitioners to understand the different timeframes applicable to each pension option and the impact it will have on the death benefit recipient’s  TBA.

“A reversionary pension must lodge a transfer balance account report (TBAR) showing the reversionary pensioner as the recipient from the date of death, however, it will only count towards the reversionary beneficiary’s TBA after a year,” Busoli noted.

“Relevantly, earnings performance or the receipt of a life insurance payout by the pension account will not affect the member’s transfer balance cap as it is measured at the date of death.

“In contrast, a death benefit pension commenced from a non-reversionary pension is treated in the same way as if it was paid from the deceased’s accumulation account.

“Investment earnings and life insurance proceeds will be included in the recipient’s TBAR and counted against the recipient’s transfer balance account from the date they begin receiving the pension.”

He added understanding this distinction can be beneficial as it provides trustees and practitioners with the opportunity to address any potential breaches of the transfer balance cap.

“Be careful though, [a reversionary pension] will count automatically [in a year], so if this will cause a breach of the member’s transfer balance cap, it should be dealt with within the 12-month period,” he acknowledged.

He also noted some superannuants may misunderstand how the different pensions impact their total superannuation balance (TSB).

“The treatment for total super balance purposes is different. A reversionary pensioner’s TSB is increased by the balance of the pension from the date of death,” he said.

“The TSB, which is measured on 30 June, will include the pension balance at that time, along with any impact from investment performance and life insurance proceeds.”

Todd Wills
October 24, 2024
smsmagazine.com.au