Earlier this week we published a blog outlining detail of the ATO’s new guidance which provided clarity on the treatment of death benefit income streams which failed to meet the minimum pension standards.

The ATO’s subsequently updated the web page that outlined their guidance on cashing a death benefit and preventing contraventions when minimum pension standards are not met available when the minimum pension standard was not met for a death benefit pension. The update noted that the guidance only applied to reversionary pensions. However, this web page and guidance has since been removed. The following is based on the previously published ATO updated guidance. We are not aware of the ATO’s view changing from this previously published view.

The original guidance in our view was relevant to both a new death benefit income stream taken by an eligible beneficiary and a reversionary income stream that is paid to a beneficiary upon death of the original pensioner.

Both types of death benefit income stream are subject to the death benefit cashing requirements, and both types of income streams are subject to annual minimum pension payment requirements. A minimum pension payment must be paid on both types of income streams in the year of death (unless the new death benefit income stream commenced in June) and in all future years in order for the income stream to meet the Superannuation Industry (Supervision) Regulations 1994 (SISR) minimum pension standards.

As such, the change to the ATO’s guidance to say it relates only to reversionary income streams has us confused. Does this change mean:

  • a death benefit income stream that is not a reversionary pension must be cashed as a lump sum if it fails to meet the pension standards in a year?
  • that the guidance only applies in the year of death where the reversionary income stream fails to meet the minimum pension standards, and not for a failure in any subsequent years?

This update to say the guidance applies only to reversionary income streams raises more questions that will now need to be addressed by the ATO in order to provide the industry with a clear understanding of the implications for failing to meet the pension standards on a death benefit income stream.

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