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Reducing Super Death Benefits Tax for Non-Dependants [Dual Pension Strategy]

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November 9, 2023

The dual pension strategy is an innovative approach to reducing the super death benefits tax for non-dependants. It involves the establishment of two pension accounts and the transfer of death benefits between them. This strategy involves setting up two pensions: one for the member and one for their spouse or partner.  

This approach involves splitting your superannuation savings into two separate accounts, one for you and one for your spouse, to take advantage of tax-free pension payments and reduce the tax burden on your estate. 

What is a Dual Pension Strategy?

Dual Pension Strategy

A dual pension strategy is a tax-effective way to reduce the amount of super death benefit tax payable by non-dependants. It effectively reduces the super death benefit tax payable by non-dependants, as the spouse or partner is considered a dependant for tax purposes. 

The first type of dual pension strategy is the reversionary pension, which allows the spouse to continue receiving pension payments after the member’s death.

The second type is the non-reversionary pension, which provides a lump sum payment to the spouse upon the member’s death. Both strategies can help reduce the tax payable by non-dependants, as they allow for a more gradual and tax-effective distribution of the super benefits. It is an effective strategy to help non-dependant beneficiaries reduce the Superannuation death benefits tax.

However, weigh the advantages and disadvantages of a dual pension strategy before making any decisions. A dual pension strategy is for SMSF members who want to reduce their super death benefit tax and provide for their loved ones tax-effectively.

How Does it Reduce the Super Death Benefits Tax for Non-Dependants?

Reduce the Super Death Benefits Tax

In Australia, the super death benefits tax, also known as the “death benefits tax” can apply to the superannuation benefits paid to non-dependant beneficiaries (such as financially independent adult children). Here are some strategies that individuals often use to minimize the super death benefits tax for non-dependants:

1. Tax-Free Component

Superannuation benefits are divided into taxable and tax-free components. The tax-free component is personal contributions for which there is no tax deduction. When these components are paid to non-dependants, they are tax-free.

2. Binding Death Nomination

Making a binding death benefit nomination ensures that the superannuation fund trustee distributes the benefits according to your wishes. It can prevent the benefits from being paid to non-tax dependents unnecessarily.

3. Use of Tax-Effective Structures

  • Death Benefit Pension: Consider instructing your super fund to pay the benefit as a death benefit pension. It can reduce the tax as earnings on assets supporting a death benefit pension may be tax-free.
  • Testamentary Trusts: Consider setting up a testamentary trust in your will to receive the death benefit. Depending on the circumstances, this can provide tax benefits for non-dependant beneficiaries.

4. Insurance Considerations

If you have life insurance within your super fund, the proceeds could be directed to pay off debts, leaving more of the super benefit to inheritors. SMSF Services include fund setup, tax and accounting support, investment advisory, compliance assistance, and ongoing administration support.

5. Seek Professional Advice

  • Financial Adviser: A financial adviser experienced in Australian superannuation laws can provide personalized strategies to minimize tax liabilities based on your situation. SMSF accountants are responsible for managing and ensuring compliance with the superannuation laws, conducting audits, preparing financial statements, and providing tax advice for SMSFs. 
  • Estate Planning Lawyer: Consult with an estate planning lawyer who understands the intricacies of superannuation laws. They can assist in setting up legal structures to minimize tax.

6. Regular Review

Superannuation laws and taxation rules can change. Regularly review your beneficiary nominations and estate planning arrangements to ensure they remain effective under the current laws.

Also Read: What Tax is Payable on Super Death Benefits? A Simple Guide!


In summary, a dual pension strategy is effective with super death benefits tax for non-dependants. The non-dependant beneficiaries can receive their inheritance with a lower tax rate by splitting the super balance into two accounts, a tax-free pension account and a taxable lump sum account. It’s helpful for adult kids and other non-dependent people with higher tax rates. An expert SMSF specialist advisor works with self-managed superannuation funds (SMSFs) and provides expert advice and guidance on managing these funds. 

But it’s important to remember that not everyone can benefit from a dual pension, so it’s essential to plan carefully. 

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