When planning for the future, most Australians focus on building wealth, but what happens to your superannuation pension when you pass away is just as important. Enter the reversionary beneficiary—a powerful, often underutilised tool in estate planning. With several updates to superannuation and tax rules in 2025, understanding how reversionary beneficiaries work can make a real difference for your loved ones and your legacy.
What Is a Reversionary Beneficiary?
A reversionary beneficiary is a person you nominate to automatically receive your superannuation income stream (such as an account-based pension) upon your death. Unlike a standard death benefit nomination, a reversionary beneficiary means the income stream continues seamlessly to the nominated individual—usually a spouse or de facto partner.
- Automatic transition: The pension does not stop and restart; it ‘reverts’ to the beneficiary with minimal administrative delay.
- Tax efficiency: Depending on the beneficiary’s age and relationship, the income stream may continue with favourable tax treatment.
- Certainty: The trustee is bound to follow your reversionary nomination, reducing ambiguity and potential disputes.
This nomination must be made when you first commence your pension or, in some cases, upon specific policy triggers allowed by your super fund’s rules.
Why Reversionary Beneficiaries Matter More in 2025
Several regulatory and economic changes have sharpened the focus on reversionary beneficiaries this year:
- Transfer Balance Cap Adjustments: The transfer balance cap—the maximum you can transfer into retirement phase income streams—was indexed to $1.98 million in 2025. If your income stream reverts to your beneficiary, their own cap is impacted. Planning is crucial to avoid excess transfer balance tax.
- Centrelink Means Testing: A reversionary pension is counted in the beneficiary’s income and assets tests, but a 12-month grace period applies before Centrelink reassesses. This can provide valuable time for strategic decisions.
- Binding Nominations vs. Reversionary: Recent case law and ATO guidance have clarified that reversionary nominations usually take precedence over binding death benefit nominations, but only if your fund’s rules allow it. Double-check your fund’s trust deed in light of these updates.
For example, if you nominate your spouse as a reversionary beneficiary and they are under 60, the pension income is taxed at their marginal rate minus a 15% tax offset. If they’re over 60, it is generally tax-free. In contrast, a lump sum death benefit might have different tax outcomes and Centrelink implications.
Key Steps to Making a Reversionary Nomination
Setting up a reversionary beneficiary isn’t automatic, and there are crucial details to get right:
- Check Your Fund’s Rules: Not all super funds allow reversionary nominations on all pension products. Confirm the specifics before commencing your pension.
- Nominate at the Right Time: The nomination generally must be made at the time you start your pension. Some funds allow changes later, but this can be restricted.
- Consider All Relationships: Eligible reversionary beneficiaries are usually limited to spouses, de facto partners, children under 18 (or under 25 if financially dependent), and certain disabled dependents.
- Review Regularly: Major life events—divorce, marriage, new children—should trigger a review of your nominations. Outdated nominations can lead to unintended outcomes.
It’s also wise to coordinate your super nominations with your broader estate plan to avoid conflicts between your will and your super fund.
Common Pitfalls and 2025 Policy Watchpoints
Even seasoned investors can stumble with reversionary beneficiary nominations. The most common traps in 2025 include:
- Assuming all pensions allow reversionary options: Some older or non-standard products may not.
- Neglecting the transfer balance cap: If your beneficiary exceeds their cap upon receiving your pension, they’ll face excess transfer balance tax and may have to commute some of the income stream.
- Centrelink surprises: The 12-month grace period is helpful, but failing to plan for future means testing can affect Age Pension eligibility.
- Not updating nominations: Life changes can render old nominations invalid or inappropriate, especially with blended families or changing relationships.
With Treasury and the ATO continuing to review superannuation estate rules, it’s essential to stay alert for any mid-year legislative tweaks that may affect the order of precedence or eligibility rules.
Conclusion
Reversionary beneficiaries are a vital component of any robust retirement and estate plan. With new superannuation caps, evolving Centrelink rules, and ongoing legislative changes in 2025, there’s never been a better time to review your nominations and ensure your wishes will be carried out smoothly. Take charge of your legacy—your future self, and your loved ones, will thank you.
