Reversionary pensions can offer major advantages — but they are not always superior in every scenario. One overlooked trap involves full commutation.
The Issue:
A full commutation may cause:
- Pension cessation before payment
- Asset sale timing complications
- Loss of pension-phase tax treatment
- Potential CGT consequences
SMSF Risk:
If assets must be sold after pension cessation, tax exemptions may be reduced.
Practical Workarounds:
- Sell assets before commutation request
- Use partial commutations
- Consider whether binding nomination flexibility is preferable
Key Lesson:
A structure that maximises certainty may reduce flexibility later.
Reviewing Your Pension and Estate Planning Strategy?
While reversionary pensions can provide valuable estate planning and Transfer Balance Cap advantages, they may also create unintended tax and flexibility issues in certain situations.
The interaction between commutations, pension timing and SMSF asset sales can be highly technical, particularly where large balances or illiquid assets are involved.
Visit our Contact Us page to discuss your superannuation and estate planning options.
Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.