A reversionary pension is a pension that is paid to a member and on the death of the member continues to be paid to an eligible dependent of the deceased i.e. their spouse or child under the age of 18.
The advantages of an automatic reversionary pension are:
- Removes the need for trustees to cash out (payout) the deceased member's benefits. Without a reversionary pension, the SMSF trustees must cash the deceased member's benefits 'as soon as practicable' after death. This cash out requirement can result in the fund having to sell large illiquid assets like property.
- Provides the deceased with certainty that their entitlements will continue to be paid as a pension to their nominated beneficiaries.
- Allows the streaming of various superannuation interests with different tax attributes to different beneficiaries.