Note
BGL does not provide accounting or taxation advice. The following is designed to act as a guide for Simple Fund 360 users. It is not designed to be accounting or tax advice and should not be taken as a strict guideline. Other methods that are more suitable may be used instead of these steps.
Overview
Simple Fund 360 allows you to revert a pension to the Reversionary Beneficiaries using the Reversionary Beneficiary Wizard. Before using the Reversionary Beneficiary Wizard you will need to link the reversionary details to the existing pension.
The financial year the primary pension member passes away
A pension ceases as soon as the member in receipt of the pension dies unless a dependent beneficiary is automatically entitled to a reversionary pension. When the pension automatically reverts, there is a requirement for the minimum pension amount to continue to be paid.
When it is not a reversionary account-based pension, a minimum pension payment is not required in the year of death.
Where a pension reverts on death, the pension continues, as a result the minimum calculated for the deceased for year of death carries across to the reversionary. Any amount not paid prior to death, must be paid to the reversionary beneficiary by 30 June. The minimum amount for the reversionary on the following 1 July is then recalculated using the reversionary’s age.
Relevant documentation confirming that the pension will be transferred to a reversionary beneficiary on and from the death of the primary pensioner will need to be completed. Documentation will need to be done outside Simple Fund 360. However, you can upload the documentation in the Documents tab.
References:
- ATO Website - Death of a Member
- TR 2013/5 - Income tax: when a superannuation income stream commences and ceases
How do I add reversionary details to an existing pension?
| From the Main Toolbar, go to Member. |
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| Select Member list. |
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- Select the relevant pension account (Click on the member code.).
- Expand the Show Nominate Beneficiaries:
- Select Yes next to Reversionary Pension.
- Select Add Beneficiary to add the details of the reversionary beneficiary.
- Select Save
The pension letters and minutes will be automatically updated indicating the pension will automatically revert to the nominated beneficiary.
Steps to revert to a Reversionary Beneficiary
| From the Main Toolbar, select Member |  |
| Select Member list from the list. |  |
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From the Members screen, locate the pension account that you wish to revert to the Reversionary Beneficiary. Select Revert to Reversionary Beneficiary. |
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* The Convert button and Revert to Reversionary Beneficiary will only display when pension accounts have a Reversionary Beneficiary attached.
Actuary Percentage
An estimated actuary percentage may need to entered manually when the conversion happens partway through the year for an SMSF with both accumulation and pension interests. Please further see the Frequently Asked Questions at the bottom.
Deceased Member Details
| Field | Explanation |
| Member's Name | The name of the deceased member who's Pension is being Reverted. |
| Date of Death | The date the member passed away. |
*Entering a Date of Death is mandatory. The date can be edited and the value will save back to contacts screen when the wizard is saved.
Reversionary Pension Account Details
| Field | Explanation |
| Pension Type | The Pension type that the member held e.g. Account-Based Pension |
| Account Code | The Member code generated for that particular pension |
| Current Account Balance | The current account balance as at the reversion date. |
| Pension Start Date | The start date of the original pension account. |
| Reversion Date | The date which the Beneficiary becomes the recipient of the income stream. Simple Fund 360 populates this date with the date of death of the deceased member. |
*The Reversion Date needs to be on the Date of Death. The day the death benefit income stream first becomes payable to the reversionary beneficiary (the starting day) is the date of the death of the original superannuation member.
Reversionary Beneficiaries
| Field | Explanation |
| Reversionary Beneficiaries | Beneficiary(s) that was previously set up for the deceased pension account. |
| Proportion | The percentage of the Current Account Balance that will revert to the beneficiary. |
*The beneficiary needs to be a person. The date of birth, and for a market-linked pension, the gender is required. The sum of all percentages cannot be greater than 100%.
Components After Reversion
The Rollover Components and Preservation Amounts are pre-filled for each Beneficiary.
The Total Rollover Components/ Preservation Amounts of each beneficiary is calculated as : Current Account Balance of the original pension account multiplied by the Reversionary Beneficiary proportion percentage.
Once the user saves, a new pension account will be created for each Beneficiary where the proportion percentage was greater than zero. The pension start date of the beneficiaries' pension account will be the original pension account start date, and the pension type of the beneficiaries' pension account will be the original accounts pension type.
Update Components
Note where users do not process the conversion following the steps above and manually convert the deceased pension into accumulation before restarting a pension for the beneficiary, the tax-free percentage of a new pension might differ from that of the original pension. When that happens, users need to update the rollover components manually.
It is advised to follow the steps above when converting a reversionary pension, so as to save this step.
Transfer Balance Cap
This section highlights the changes that the reversion will have on the transfer balance cap of all members involved. Transfer Balance Cap section will only be populated if the reversion date is on or after 01 Jul 2017.
| Field | Explanation |
| Member | Simple Fund 360 generate a credit amount on Beneficiary's transfer balance account and a debit amount on the deceased member's transfer balance account |
| Effective Date | This is the Reversion date. |
| Event | The TBAR event type that will be selected. For deceased member, the event type is N/A - Non Reportable Event. For beneficiary member, the event type is IRS - Reversionary Income Stream. |
| Current Account Balance | The Transfer Balance Account balance prior to reversion |
| Cap Limit | The Transfer Balance Cap Limit |
| Cap Remaining Prior to Reversion | The Remaining Balance on the Transfer Balance Cap prior to Reversion. |
| Cap Remaining After Reversion | The Remaining Balance on the Transfer Balance Cap after to Reversion. |
Once you have completed the Reversionary Beneficiary Wizard, Simple Fund 360 will post an internal transfer journal of the balance being reverted to the Beneficiary.
Simple Fund 360 will also update the Pension Dashboard for the deceased member and the Beneficiary.
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You also have the option to prepare reversionary beneficiary pension letter and minute for all beneficiary(s). These documents can also be printed later in Reports screen
When an existing pension is reverting to a member reaching $1.6 million TBC - Example.
Please note BGL doesn’t provide accounting or taxation advice, and below content is only an example of functions in Simple Fund 360.
John and Mary are trustees and members of their SMSF. Both members are receiving account-based pensions (ABP) within the fund, with balances as follows at 30 June 2018:
- John – ABP – $68,000
- Mary – ABP – $1,590,000
John has passed away on 30 September 2018. Per the death benefit nomination, John’s existing pension ($65,000 on) is set up as reversionary pension with Mary as the sole reversionary beneficiary at 100% (i.e. the full existing pension balance). On 01/07/2018, Mary already has an existing transfer balance of 1.59 million.
Set up Mary as the sole reversionary beneficiary:
Accessing reversionary pension wizard, we are able to see under the Transfer Balance Cap section, two TBAR events have been created, while Mary now is having a transfer balance more than 1.6 million.
This fund is not required to report the death benefit for John, as this will be reported by other government bodies (see below instructions from the ATO).
Events an SMSF doesn’t need to report, commonly include:
- pension payments made on or after 1 July 2017
- investment earnings and losses that occurred on or after 1 July 2017
- when an income stream ceases because the capital has been exhausted
- the death of a member (although if the member’s pension was reversionary you may be required to report the reversionary pension).
For Mary (the reversionary beneficiary), this event (IRS) needs to be reported to ATO in the next reporting due date, which is depending on the TSB of this fund. However, the ATO will not “add” the credit to the beneficiary’s transfer balance account until 12 months after the date of death of the deceased member (this credit amount will be displayed as pending on the individual’s transfer balance). This is to allow Mary to seek for assistance in managing her affairs and to contemplate any commutations of her existing income streams since she now is having a transfer balance more than 1.6 million (see below instruction).
Once saved in this screen, this IRS event can be found in both Transfer Balance dashboard and management screen.
Frequently Asked Questions
How is the Reversion Date determined? Can it be edited?
The Reversion Date is automatically populated based on the Date of Death of the deceased pension member. The Reversion Date can be edited, provided it is either on or after the Date of Death.
What if the Beneficiary is not an Individual?
The income stream can only be reverted to Individual Beneficiaries. For a Non-Individual Beneficiary (e.g. an Estate), you need to reduce the proportion to 0% before continuing with the wizard. The non - individual’s proportion of the income stream can later be processed as a lump sum payment.
What if the original income stream is TRIS in accumulation phase?
The reversionary wizard will create a new pension account for each beneficiary. The original details of the income stream such as Pension commencement date and pension type remain.
The exception is Transition to Retirement in Accumulation Phase that commenced on or after 01 Jul 2017. Once reverted to the beneficiary(s), the pension type will be TRIS (Retirement Phase). A Transfer Balance credit amount will be automatically generated for each beneficiary.
Please note that at this stage, the user needs to edit the Reversionary Beneficiary Pension journal after processing to move the beneficiary’s component to Unrestricted Non-Preserved. We will automate this process in a future release. Reference: https://www.ato.gov.au/law/view/pdf/gdn/gdn2019-001c1.pdf
What is the effective date of the Transfer Balance event?
360 populates Transfer Balance entries when Reversion Date is on or after 01 Jul 2017.
We have sought guidance from the ATO and confirmed that the effective date of the Transfer Balance Event is the date when the Beneficiary becomes the recipient of the income stream (Reversion date or Date of Death). The due date for TBAR reporting is also based on this date. However, the ATO will not “add” the credit to the beneficiary’s transfer balance account until 12 months after the date of death of the deceased member.
How is the minimum pension requirement calculated?
In the financial year of the date of death (first year), the minimum pension amount is calculated based on the deceased member's percentage/payment factor. For subsequent years, the minimum pension amount is calculated based on the beneficiary's percentage/payment factor.
How to reverse the Reversionary process
- Delete the Reversionary Beneficiary Pension Journals in the Transaction screen
- Ensure all transactions to Beneficiary Pension accounts are deleted (include system profit and loss allocation journals)
- Delete the Beneficiary pension accounts in Member screen
- Toggle All Member Accounts in the Members Screen. Locate the original pension account and remove the End Date.