I had an interesting question raised via a financial adviser last week regarding a death benefit pension being paid to a member under age 55 who wished to transfer this to a SMSF. I thought I would share with you the important implications of this decision.
John (52) passed away and is survived by Jane (48). His super benefit resides in a retail super fund, with the proceeds of the life insurance to be paid to John’s account and applied as part of a death benefit pension for Jane. There has now been a suggestion to transfer Jane’s death benefit pension to a SMSF. What are the consequences (if any) of Jane transferring the benefit?
In the event of the death of a member, where a tax dependant exists, such as a spouse, the beneficiary has the right to receive the benefit in the form of a lump sum, pension or combination of both (subject to the governing rules of the fund). Depending on the age of the deceased member, there are different tax consequences where the benefit is taken as an income stream. The table below outlines this:
|Age||Taxable Component (taxed element)||Taxable Component (untaxed element)|
|60 and above||0% – Non-Assessable, Non-Exempt (NANE) Income||MTR less a 10% tax offset|
|Preservation age* to 59||MTR less a 15% tax offset||MTR (no tax offset)|
|Below preservation age*||MTR (no tax offset)||MTR (no tax offset)|
However, where the amount is commuted and rolled over to another complying superannuation fund (including SMSF), the character of the superannuation interest (being a death benefit pension) ceases. The benefits are still unrestricted for the member or beneficiary, however any income stream taken will simply apply against the account based pension rules and be ineligible for the 15% tax offset.It is important to note that the 15% tax offset also applies under preservation age* to a member where a disability super benefit is paid or to a beneficiary of a deceased member receiving a death benefit pension.
It is therefore important that you understand the potential impact of switching benefits as it could have a significant tax impact.
Learn more about this and other pension issues and strategies in the SMSF Pensions Webinar on Tuesday, 29 November
* Preservation age
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