In short

When a pensioner dies, what happens next depends on whether their account-based pension was set up as reversionary. A reversionary pension continues automatically to the nominated spouse, with a 12-month grace period before it counts against their Transfer Balance Cap. A non-reversionary pension stops immediately and becomes a death benefit, which must be paid as a lump sum or new pension within about six months to preserve favourable tax treatment.

For most working life, the pension stage of super feels distant — a future state, not a current reality. But once a member commences an account-based pension, a set of rules applies that determines what happens to the balance, and to the income, on the day the member dies. Those rules are largely fixed by setup decisions made years earlier, and most pensioners and their families have not thought carefully about them.

This is a roadmap. Not for the strategic decisions that go into estate planning — those are covered separately — but for the practical mechanics. What happens automatically? What does the fund do? What does the family need to do? What is the timing?

The first question: reversionary or not. When a pension was commenced, the member elected (or did not elect) for the pension to be reversionary to a named beneficiary, almost always a spouse. The election is documented in the pension agreement with the fund. It cannot generally be added later, although it can sometimes be removed. For couples, the reversionary election is the single most important setup decision affecting what happens on death.

Reversionary pension: continuing operation. If the pension is reversionary to a spouse:

  • The pension does not stop. It continues automatically from the day after the member's death, with the spouse as the recipient.
  • Pension payments continue. The regulated minimum drawdown applies based on the spouse's age and the balance.
  • Pension phase tax treatment continues unbroken — the fund's earnings remain tax-free, and the income to the spouse is tax-free if the spouse is 60 or over.
  • The spouse's transfer balance cap is affected, but with a 12-month grace period from the date of the member's death. The credit to the spouse's transfer balance account does not apply until 12 months after death, allowing time to commute any excess.

For a typical couple, the reversionary mechanism is the simplest possible outcome. Income flows. The 12-month TBC grace period gives space to plan. No dramatic administrative steps are required of the surviving spouse.

Non-reversionary pension: the death benefit administration. If the pension is not reversionary:

  • The pension automatically stops at the member's death.
  • The fund treats the balance as a death benefit, payable under the trust deed and any binding death benefit nomination (BDBN).
  • The fund's pension phase tax treatment continues for a defined administration period — typically up to 6 months from the date of death, or 3 months after grant of probate, whichever is later.
  • Within that period, the trustee must pay the death benefit, either as a lump sum to one or more beneficiaries, or as a new account-based pension to an eligible beneficiary.

If the timing is missed, the favourable tax treatment during admin is lost, and the fund may need to pay tax on earnings during the post-period administration.

The BDBN and trustee discretion. A valid binding death benefit nomination requires the trustee to pay the death benefit in accordance with the nomination. A non-binding (preferential) nomination is an indication only — the trustee retains discretion. No nomination at all gives the trustee full discretion.

The eligible beneficiaries under super law are: a spouse (married, de facto, or same-sex partner), a child under 18, a financially dependent child or person, a person in an interdependency relationship with the deceased, or the deceased's legal personal representative (executor) for distribution under the will.

An out-of-date BDBN is a frequent failure point. The nomination names someone who is no longer the intended recipient — a former spouse, a deceased child, or a beneficiary who would not be the member's choice today. If the BDBN has lapsed (most public-offer fund nominations lapse after 3 years), the trustee falls back on discretion. Reviewing BDBNs every three years, and after any significant family change, is one of the most important hygiene tasks for a pensioner.

Lump sum or death benefit pension — the recipient's choice. When the trustee proposes payment, the eligible recipient may have a choice — depending on the BDBN and trust deed — between a lump sum and a death benefit pension.

Lump sum. Cash payment to the recipient. The tax treatment depends on the recipient's relationship to the deceased: a SIS dependant (typically a spouse or financially dependent person) receives a lump sum tax-free; a non-SIS-dependant (typically an adult child without financial dependency) pays 15% plus Medicare on the taxable component, with the tax-free component still tax-free.

Death benefit pension. Continues as an income stream. Available only to specific eligible recipients — generally a spouse or a dependent child. Adult children cannot continue a parent's pension as a death benefit pension unless they meet specific dependency tests. For adult children, a lump sum is the only option.

The transfer balance cap interaction. A death benefit pension to a surviving spouse counts toward the spouse's transfer balance cap ($2.1 million in 2026–27, up from $2.0 million in 2025–26). A spouse with their own existing pension may breach the cap when the death benefit pension commences. For reversionary pensions, the 12-month grace period applies; for non-reversionary death benefit pensions, the credit is immediate. Where the cap is breached, the spouse must commute the excess to accumulation phase — which then either remains in accumulation (taxable) or, if the spouse is in retirement, can be paid as a lump sum.

A practical timeline for non-reversionary cases.

Day 0: Member dies. Family obtains death certificate (typically 5–10 days for issue).

Week 1–2: Family notifies the fund. Fund identifies whether reversion applies and locates any BDBN.

Week 2–4: Family appoints solicitor for estate administration. Probate application begins where required.

Months 1–6: Trustee determines the death benefit pathway. Trustee may request information from executor and beneficiaries.

Months 3–6: Probate granted. Trustee can act on grant of probate where required.

Month 6 (or 3 months post-probate): Death benefit must be paid (lump sum) or commenced (death benefit pension) to preserve the favourable tax treatment during admin.

For reversionary cases, the timeline is much simpler — the pension simply continues, with the 12-month TBC grace period operating in the background.

What to do now, while alive. Three actions that meaningfully reduce the burden on a future bereaved family:

  • Confirm the reversion status of every pension held. For couples, reversion to the spouse should be the default unless there is a specific reason otherwise.
  • Update the BDBN. Confirm it is current, valid, and reflects intentions today. Schedule a three-year review cycle.
  • Brief the family. A simple "in case I die" document with the fund name, account number, contact for the fund, and contact for the adviser. The brief saves the family weeks of uncertainty.

The mechanics are not complicated. They just need to be set up before they are needed, and the family should know what to expect.

Sources

Key takeaways

  • Whether a pension is reversionary — elected when it was set up — is the single most important factor determining what happens automatically when the member dies.
  • A reversionary pension continues without interruption to the nominated spouse, with tax-free treatment unbroken and a 12-month grace period before it counts against the spouse's Transfer Balance Cap.
  • A non-reversionary pension stops immediately at death and becomes a death benefit, which the trustee must pay as a lump sum or new pension within about six months (or three months after probate) to preserve favourable tax treatment.
  • A death benefit pension counts toward the recipient spouse's own Transfer Balance Cap ($2.1 million for FY2026-27) — a spouse with their own existing pension may need to commute an excess.
  • An out-of-date Binding Death Benefit Nomination is a frequent failure point — most public-offer fund nominations lapse after three years, after which the trustee falls back on discretion.

Frequently asked questions

What happens to a pension if it's reversionary and the member dies?

It continues automatically from the day after death, with the nominated spouse as the recipient. Payments continue, pension-phase tax treatment stays unbroken, and there's a 12-month grace period before the balance counts against the spouse's own Transfer Balance Cap.

What happens if the pension isn't reversionary?

The pension stops immediately at death and the fund treats the balance as a death benefit, payable under the trust deed and any Binding Death Benefit Nomination. The trustee generally has up to six months from death (or three months after probate, whichever is later) to pay it while retaining favourable tax treatment.

Can an adult child continue their parent's pension after death?

Generally no. A death benefit pension is only available to specific eligible recipients — usually a spouse or a dependent child who meets specific dependency tests. For most adult children, a lump sum is the only option.

What should I do now to make this easier for my family later?

Confirm the reversion status of every pension you hold (reversion to your spouse should be the default for couples), update your Binding Death Benefit Nomination on a three-year review cycle, and brief your family with a simple document listing your fund name, account number, and adviser contact.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.