Self managed superannuation fund (SMSF) members looking for a particular outcome upon their death are best advised to use a life pension, according to a legal expert servicing the sector.
“A life pension is an account-based pension in which the rights that would otherwise apply… to a [standard] account-based pension have been restricted,” Townsends Business and Corporate Lawyers special council Michael Hallinan said.
Restrictions that can be imposed by using a life pension include those covering commutation and rollover rights, and drawdown rights.
Furthermore, a pension with entrenched terms can be established in this way.
However, while a life pension is a more effective means of achieving the desired outcome upon an SMSF member’s death, it cannot guarantee the desired result, Hallinan said.
Longevity can nullify the full effect of a life pension, particularly if benefits are paid to a spouse first and then to children, in the event of the spouse’s death, according to Hallinan.
Therefore, if the spouse lives long enough to fully run down the pension then the subsequent restrictions will not apply, he said.
“Also, obviously, you cannot guarantee against adverse economic performance, and negative returns will run down the account balance pretty quickly,” Hallinan said.
