What is the difference between Binding Death Benefit Nomination and the Reversionary Pension? To answer this question, we need to define what is the Binding Death Benefit Nomination and Reversionary Pension first.
A Binding Death Benefit Nomination is the way that the member of a superannuation fund binds the trustee of the superannuation fund to pay his s death benefits according to his advice during his life.
If the member would like to pay his dependant after his death as a pension rather than a lump sum; He could start a pension and advice the trustee to continue the regular pension payment to his nominated dependant after his death. This is called Reversionary Pension; the nominated dependants are the Reversionary Beneficiary Nominations of the member.
Section 10 of the Superannuation Industry Supervision Act 1993 (SISA) says that the member can only nominate his or her dependants as a beneficiary. The member dependants can be the member’s spouse or a child or if the member has an “interdependency relationship” with someone.
The conditions which need to be fulfilled if “interdependency relationship” is existing between the beneficiary and the member are as following according to the Superannuation industry Supervision Act 1993 (SISA),
- They should have a close personal relationship
- They should live together
- One or each of them provides the other with financial support and
- One of each of them provides the other with domestic support and personal care.
The child who is nominated as the beneficiary has to be less than 18 years of age. Alternatively if the child is in between 18 to 25 years of age, he or she has to be financial dependent on the member, or a child who has a disability as defined in Superannuation industry Supervision Act 1993
The nominated dependant can be paid a regular pension at the same rate as was being paid to past member or as portion of the original pension payment. Sometimes it can also be paid as a lump sum according to the rules of the fund.
One of the limitations of a Reversionary Pension is that the Reversionary Pension beneficiary cannot be a Legal Personal Representatives or children over 18 years of age. Therefore in some circumstances a Binding Death Benefit Nomination will be required to ensure that death benefits are paid to the Legal Personal Representative or adult children.
Another limitation is that only one Reversionary Beneficiary can be nominated to receive the pension stream after the death of the member. Therefore if the member who has passed away and has several children who is under age of 18, the Binding Death Beneficiary Nomination would allow the member to make multiple nominations.
The other limitation of the reversionary nomination is the nomination does not cover the accumulation interests.
Last but not the least, the reversionary benefits will be lost if the pension is commuted. Pension commutation means that the member chose to give up part or the entire pension payments from retirement in exchange for an immediate lump sum withdrawal. In this case, the existing reversionary beneficiary nomination will be lost and a new nomination will be required.