Reversionary Pension Rules in Australia: How They Work

A reversionary pension is a super income stream that carries on automatically to a person you nominate when you die, so the payments continue without the fund having to decide who gets what. The nominee must be a dependant, the pension has to be set up as reversionary from the start, and the beneficiary’s own transfer balance cap is affected 12 months after your death. A binding death benefit nomination is a different tool with different consequences, and the two are often confused.

This guide covers who qualifies, what happens to the payments, how the cap works, where the risks sit, and how to choose between the two options.

TL;DR

• A reversionary pension continues to a nominated dependant (such as a spouse) automatically on your death, and the nomination has to be part of the pension itself.
• A binding nomination cannot turn a non-reversionary pension into a reversionary one, according to the ATO’s ruling on death benefit income streams.
• The pension counts toward the beneficiary’s transfer balance cap, but the credit is deferred for 12 months from the date of death.
• Only one reversionary beneficiary can be named per pension, and the fund’s rules decide what is on offer, so check yours before you plan around it.

Table of Contents

• What a reversionary pension is
• What happens to the payments after death
• How the transfer balance cap applies
• Tax on reversionary payments
• Reversionary pension vs binding nomination
• Which one suits which situation
• The risks and disadvantages
• Perspective: model it before you choose
• Model your own scenarios
• A practical checklist
• FAQ
• Sources

What a reversionary pension is

When you start an account-based pension, you can often choose who receives it if you die. If you name a reversionary beneficiary, the pension does not stop and restart as a new benefit. It simply continues, now paid to that person. Under the ATO’s guidance, the eligible dependants are a spouse, a child under 18, a financially dependent child under 25, a child with a disability, or a person in an interdependency relationship (ATO, LCR 2017/3).

Two points catch people out:

1. The nomination is made on the pension, not on your general fund membership. Whether reversion is possible depends on the fund’s governing rules or the pension’s original terms.
2. A reversionary beneficiary is chosen, not assumed. A fund will not make your partner reversionary just because they are your partner.

The practical appeal is continuity. A surviving spouse keeps receiving income without a gap, and the fund does not need to work out who the beneficiary is.

What happens to the payments after death

Payments carry on, but the numbers underneath change. For minimum pension amounts, the year of death is handled using the original member’s minimum factor. In later years, the factor for the new beneficiary’s age applies (AUASB, GS 009).

If the beneficiary is a child, the rules are narrower. For an account-based pension, the fund keeps paying until the child turns 25, and then the remaining balance is paid out as a lump sum (Moneysmart).

The minimum payment in the year of death

This is a technical point that trustees take seriously. If the minimum was not paid in the year of death, the trustee may be able to self-assess whether the pension can continue when the shortfall or error is small. Otherwise the pension is treated as having stopped, and the death benefit has to be paid out as soon as practicable (AUASB, GS 009). For a family, that can mean an unplanned lump sum rather than an ongoing income. If you run your own fund or advise a parent who does, watch the payment calendar in the final year.

How the transfer balance cap applies

The transfer balance cap limits how much you can hold in tax-free retirement phase income streams. A reversionary pension counts towards the beneficiary’s cap, but the credit does not arise immediately. It arises 12 months after the date of death, and its value is the interest supporting the stream on the applicable valuation date (ATO, LCR 2017/3). The ATO explains how these credits are recorded in its transfer balance account guidance.

That 12-month deferral exists so the beneficiary has time to arrange their affairs and avoid breaching the cap. It is not a reason to ignore the issue. The general cap was $1.6 million in 2017-18 and has been indexed since (ATO, LCR 2016/9). Our own guide covers the current figure of $2.1 million from 1 July 2026.

A worked example

Suppose you hold a pension of a size that, added to your partner’s existing pension, would take them over their personal cap once it reverts. Your partner has a 12-month window before the credit lands. In that time they could:

• Commute part of their own pension to create room.
• Leave excess amounts in accumulation, where earnings are taxed at the fund’s rate rather than being tax-free.
• Adjust how the reverted pension is structured, if the fund allows.

The point is to run the numbers before death, not in the middle of grief. Modelling the combined balances against the cap is exactly the kind of work that transfer balance cap strategy is built around.

Tax on reversionary payments

Tax depends on who receives the pension and the age of the original member and beneficiary at the time. Payments to a surviving spouse are generally treated under the rules for super income streams paid from a taxed source, but the details vary with the ages involved, whether the benefit is from a taxed or untaxed source, and whether it is a death benefit to a dependant. A child recipient, for instance, is treated differently from an adult.

For defined benefit pensions, a separate income cap applies. The general defined benefit income cap was $125,000 for 2025-26 (ATO, Schedule 13), and we explain the current-year figure and what happens above it in our defined benefit pension tax guide. For anything involving a non-dependant, see our piece on tax on super death benefits, because the tax outcome for adult children, for example, is very different.

Reversionary pension vs binding nomination

These are two separate mechanisms, and they work at different points.

Two details matter most. First, a binding nomination cannot make a non-reversionary pension reversionary. Reversion has to be written into the fund’s rules or the pension’s original terms (ATO, LCR 2017/3). Second, where the fund has power or discretion over who gets the death benefit, its form or its amount, the resulting income stream is non-reversionary under the ATO’s definition, with different consequences.

On lapsing nominations, Moneysmart says they must be renewed or changed every 3 years or they expire, while non-lapsing ones do not. Without a valid nomination, the trustee may have authority to decide who receives the death benefit (Moneysmart). Our guide to avoiding a 3-year lapse walks through how to keep a nomination alive.

Which one suits which situation

Neither is better in the abstract. The right choice depends on who you are protecting and what you want to happen to the money.

A reversionary pension tends to fit when:

• You have a partner who relies on the pension income and you want no interruption.
• You want certainty that the trustee has no say.
• Your partner has enough cap space, or you have planned how to create it.

A binding nomination tends to fit when:

• You want to split the benefit between several people, which a single reversionary beneficiary cannot do.
• The partner is already close to their own cap, and a lump sum or a flexible split suits the family better.
• The person you want to benefit is an adult child or another person who is not an eligible dependant for income stream purposes, so the benefit has to be paid as a lump sum.
• You are in accumulation phase, where there is no pension yet to revert.

Many people use both: a reversionary nomination on the pension for the spouse and a binding nomination covering any remaining super. Check that the two do not contradict each other and that your fund allows both.

The risks and disadvantages

Reversion gives certainty, but it also removes flexibility. The main drawbacks:

• Only one beneficiary. You cannot split a pension across several people through reversion.
• Less flexibility later. Once the pension reverts, the new beneficiary inherits its terms. A death benefit paid as a fresh pension to a dependant may be treated differently in some respects.
• Cap pressure. A large reversion to someone with their own large balance can push them over their cap, with excess transfer balance tax consequences if mishandled.
• Changing circumstances. If you separate, remarry, or your partner dies first, an old nomination can produce a result you did not intend. Review after any major life event.
• Fund limits. Not every fund, especially some large public offer funds, offers every option. Read the product disclosure statement and the pension application form.
• Minimum payment errors. As above, a missed minimum in the year of death can unwind the pension.

If your estate is complex (blended family, business interests, a self-managed fund), see a licensed financial adviser and an estate lawyer before you rely on any of this. A fund’s deed can change what is possible.

Perspective: model it before you choose

Most reversionary pension decisions get made in a form at the start of retirement and never reviewed. We think that is the weak point. The rule is simple. The consequences are not, because they depend on two people’s balances, ages, caps and Age Pension position at the same time.

What we see in planning is that the useful question is not “reversionary or not?” It is “what does the survivor’s position look like in each case?” Put the same household through both paths and compare: the survivor’s income, their transfer balance cap headroom after 12 months, and their eligibility for the Age Pension. Our Age Pension income test guide shows why that last point can swing the answer, and our retirement income strategies guide shows how the pieces fit together over decades.

A spreadsheet can do this, but it tends to hide assumptions. Side-by-side scenarios with stress tests make the trade-offs visible, and that is what we built AeroWealth to do.

— Aerowealth Team

Model your own scenarios

If you want to see how a reversion would change the survivor’s income, net worth and cap position, you can try it in AeroWealth. The free plan lets you start building a plan, and Pro is A$7 a month, with expanded scenario planning and a higher AI assistant quota. See the AeroWealth pricing page for what each plan includes.

The AI assistant explains projections under Australian rules, so you can ask why a figure changed rather than decode it yourself. You can start from the AeroWealth home page.

A practical checklist

1. Read your pension documents. Find out whether your fund offers reversion and whether it is already set.
2. Check your nomination type. If it is lapsing, note the expiry date.
3. Run both balances against the cap. Include your partner’s existing pension and the amount that would revert.
4. Look at the minimum payments. Make sure they are on schedule, particularly in a year when health is a concern.
5. Review after life changes. Marriage, separation, a death in the family, or a large change in balance all justify a fresh look.
6. Get advice on anything unusual. A licensed financial adviser and an estate lawyer can confirm what your fund deed allows.

FAQ

Can I change a reversionary beneficiary later?

Usually yes, while you are alive, if your fund’s rules allow it. The change is made on the pension rather than through a general nomination form, so ask the fund which form it requires. Some funds treat the reversionary choice as fixed once the pension starts.

Does a binding nomination override a reversionary pension?

No. A binding nomination cannot make a non-reversionary pension reversionary, and a reversionary pension is set by the pension’s terms. The two should be aligned so they do not point at different people.

When does a reversionary pension count toward the transfer balance cap?

The credit arises 12 months after the member’s death, not on the date of death. Its value is based on the interest supporting the stream on the applicable valuation date. That gives the beneficiary a year to rearrange their affairs.

What are the disadvantages of a reversionary pension?

Only one person can be named, flexibility is reduced, and the reverted amount can push a beneficiary over their cap. A missed minimum payment in the year of death can also cause the pension to be treated as stopped. Reviewing the nomination after major life events reduces the risk of an outcome you did not intend.

Sources

• ATO, LCR 2017/3 and death benefit income streams
• ATO, LCR 2016/9 on the transfer balance cap
• ATO, Transfer balance account
• ATO, Schedule 13 tax table for super income streams
• AUASB, Benefit Restrictions GS 009
• Moneysmart, Account-based pensions
• Moneysmart, Who gets your super if you die

Recommended

• Retirement Income Strategies for Australians: 2026 Guide
• Pension Drawdown Rates Australia: 2026–27 Minimum Table
• Age Pension Income Test Explained for Retirees in 2026