The case of Re Narumon Pty Ltd examines a number of important SMSF issues including defects in a chain of SMSF trust deeds, proving whether a pension and a reversionary nomination exists without original pension documents and whether a binding death benefit nomination (BDBN) can be renewed or made by an attorney. This snippet looks at the issue relating to proving whether a pension and a reversionary nomination exists without original pension documents.

The deceased member of the SMSF in question had, at the time of his death, an accumulation account worth about $1 million and an account for a lifetime complying pension worth about $3 million. The deceased’s second spouse was nominated as the reversionary beneficiary of the lifetime complying pension. The problem was that the SMSF trustee was unable to locate any documentation directly relating to the establishment of the pension or the nomination of the reversionary beneficiary. This raised an issue as to whether the pension could be proven to exist and whether the reversionary nomination was binding.

The Court ultimately found, based on secondary evidence, that despite the original documentation relating to their establishment not being available, that the lifetime complying pension existed and that the reversionary nomination was binding. That secondary evidence included:

advice to the deceased from a former advisor in 2000 that a complying pension should be commenced when the deceased reached 65 and that his spouse should be nominated as a reversionary beneficiary.

information in 2005 about the administration and compliance procedures required to implement a complying pension.
correspondence in 2007 containing actuarial certification of the SMSF’s complying pension payment for the 2007 year.
financial statements for the SMSF between 2005 to 2017 which refer to a lifetime pension which commenced in 2005 and which has his spouse nominated as the reversionary beneficiary.
information from the SMSF’s actuary which evidenced that the pension valuations were based on the pension having the spouse nominated as a reversionary.

This case shows the importance of having pension documentation to support the existence of a pension and, in particular, the nomination of a reversionary pension. Here, the nature of a complying pension, and the fact that pension payments differ when a reversionary pensioner is nominated, could have been a significant factor in the Court accepting that a reversionary nomination existed. Such a factor does not exist for account based pensions and transition to retirement income streams, which may make it more difficult to prove such nominations exist for those pensions in similar circumstances to this case.

Therefore, it is important that pensions, and nominations of reversionary pensions, be appropriately documented and that those records be kept in a safe place. This is important not only to ensure the pension will continue to be paid to the reversionary after the death of the member but also to ensure the reversionary receives the 12 month deferral of the credit relating to the reversionary pension under the transfer balance cap regime.

To discuss this further or for more information please contact:

Phil Broderick
Principal
Sladen Legal
T +61 3 9611 0163 l M +61 419 512 801
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: pbroderick@sladen.com.au

Ashleigh Eynaud
Associate
Sladen Legal
T +61 3 9611 0129
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: aeynaud@sladen.com.au