Fred and Wilma were concerned about what would happen to Fred’s pension upon his death. Fred’s service period began on 1 January 1995 and his pension balance is $700,000 which consists entirely of the taxable component. Although tax-free if paid to Wilma, should the death benefit be paid to his adult children then the entire balance will be subject to tax at 16.5% ($115,500), so they would only receive $584,500.
We informed Fred and Wilma that his existing pension does not provide for anti-detriment payments, which broadly speaking is a refund of the contributions tax paid should the benefit be paid as a lump sum to eligible beneficiaries.
Therefore we recommended that Fred rollover to a similar super fund, but one that does automatically pay an anti-detriment payment. As a beneficiary Wilma could elect to receive the death benefit as a pension or as a lump sum. If she elects the lump sum then the anti-detriment payment would be $123,550 which would provide for an overall death benefit of $823,550. Should it be paid to Fred’s adult children then the overall death benefit would be $687,664 which $103,164 more than had an anti-detriment payment not been made.
Today, Fred and Wilma are enjoying the retirement lifestyle they always looked forward to. We continue to help them protect their wealth for future generations.
This is a hypothetical example based on a real client experience. Names and details have been changed.