Accurium SMSF and retirement income technical services manager Melanie Dunn’s aptitude in mathematics and her thirst for a challenge led to her pursuing actuarial studies, which in turn led her to the world of SMSFs. She discusses the multi-layered complexity of the super reforms with Malavika Santhebennur.
How did you become involved in the SMSF industry?
I actually fell into the SMSF industry just by virtue of my first job really. At university, when I discovered I was interested in becoming an actuary, I got a part-time job at Bendzulla Actuarial, which is now known as Accurium and where I still work today. Accurium produces actuarial certificates for SMSFs and my first job was actually manually by hand back then doing the calculations for defined benefit actuarial certificates and associated superannuation consulting work. Our online portal functionality was launched in 2010. Bendzulla at the time was the first company to develop the online process for SMSF actuarial certificates. From there I just developed my knowledge of pensions, super and SMSFs.
Your initial qualifications were in economics, finance and actuarial studies. What interested you about SMSFs?
At university I studied a Bachelor of Economics and a Bachelor of Science majoring in mathematics and economic analysis, so I was always good at maths and loved numbers. But I wanted a challenging career with a business focus. So when I heard about actuarial it ticked all the boxes for me and so I completed further study to become a fellow of the Institute of Actuaries of Australia specialising in retirement income systems. Further SMSFs, or superannuation and retirement more broadly, interests me because I truly do feel the work I do educating professionals about SMSF law and risks in retirement really does help Australian retirees receive better quality advice. Understanding all those laws and regulations and the different products available and financial modelling of retirement is all very complex and I’m interested in helping making those complicated systems easier to understand. As a result, part of my job at Accurium is providing technical content, articles and webinars to clients and staff.
How have your actuarial qualifications helped you assist clients with their technical queries around SMSFs and retirement strategies?
Retirees with SMSFs are essentially taking on all the risks of managing their finances in retirement. So with my actuarial background I have a strong expertise in retirement forecasting and risk. Part of my job is working on a number of tools that manage risk. The three key retirement risks are market risk, inflation risk and longevity risk. The one we focus on is longevity risk, a key risk faced by Australian retirees in not knowing how long they’re going to live. So the ability to know how to use appropriate retirement models is where that actuarial background comes in. As an actuary I also have access to all of the guidance notes and material produced by the Actuaries Institute to assist with specific legislative requirements for SMSFs. I see my job as making the complex simple and I really enjoy doing that.
What challenges have the 2016 super reforms brought in terms of the technical queries you have had to field around SMSFs?
The super reforms have been a huge challenge not just to us, but to everyone in the super industry. There have just been so many changes for professionals to be across. So in the lead-up to 1 July 2017, everyone’s focus was on the transfer balance cap, getting their documentation in place to facilitate commutations so members wouldn’t have an excess transfer balance. Then we moved on to the 2016/17 financial year and the focus was on that annual return; understanding how and when a fund could apply for the capital gains tax relief. In addition, retirees and their professionals are needing to understand the new transition-to-retirement income stream rules, deemed segregation, disregarded small fund assets, total super balance and transfer balance account reporting. Accurium has always had a focus on providing technical services to our clients, but in response to this huge amount of reform we actually found clients are looking for more. So we introduced probably a year ago monthly webinars for our clients and these have been hugely successful as a medium for people to stay up to date on the reforms.
I see it’s more important than ever for professionals to align themselves with specialists who can assist in answering those tricky in-depth questions, and to ensure they are educated in all of the new requirements. In particular, we found professionals who only deal with a few SMSFs have found it particularly hard to be across all of the new requirements.
Melanie Dunn
What has been the most complex aspect of advising clients on exempt current pension incomes (ECPI)?
Disregarded small fund assets and deemed segregation have been the two big complexities we found when advising on segregation and ECPIs. From 1 July 2017, essentially the ATO’s view on deemed segregation or on segregation generally has changed about how you claim ECPI. It means that any period in a year where a fund was solely supporting a retirement-phase account, account-based pensions, for example, with no accumulation accounts, the fund has to claim ECPI using the segregated method now. We know from the 2017/18 financial year onwards we have to comply with the ATO’s new view on deemed segregation and a fund in that scenario actually has to use both the proportionate and segregated method to claim ECPI. The other side of the coin was disregarded small fund assets, which again people are still getting their heads around. And this throws a spanner in the works because disregarded small fund assets means you actually have to do the opposite of what I just explained with respect to deemed segregation, which is what makes it so confusing. Every financial year now under section 295-387 of the Income Tax Assessment Act 1997, advisers and trustees must check whether a fund has disregarded small fund assets. Basically you look back at 30 June and determine whether any member in the SMSF had a total super balance which exceeds $1.6 million and had a retirement-phase account anywhere in super. If any member meets that condition for the following year, the SMSF will have disregarded small fund assets and will have to use the proportionate method to claim ECPI. They’re actually not allowed to use the segregated method for tax purposes, which means everything about deemed segregation they have to just ignore.
What advice would you give clients who are trying to assess if they need an actuarial certificate?
First advice I would give is talk to your actuary. I know at Accurium we’re happy to have a chat on the phone about when clients require an actuarial certificate and we have a number of resources available on our technical hub, such as our useful PDF flow chart which you can follow that shows when you require an actuarial certificate. And with the implementation of disregarded small fund assets and new view on deemed segregation, it’s important to understand requirements for actuarial certificates have changed. So it is important to review funds and whether they need an actuarial certificate. You can’t just assume it’s the same as previous years. Look for an actuary who not only provides you with a certificate, but does some checks and balances to help you work out whether you’ve filled out the form correctly and are correctly claiming ECPI for your client.
What’s the biggest challenge for the industry over the next 12 months?
I see two big challenges for our industry over the next 12 months. The first challenge faced by professionals is just keeping up with the pace of change. The super reforms have introduced a host of new rules and regulations and we’re seeing additional administration and reporting requirements making it harder and harder to be across all of this unless you’re specialising in SMSFs. So I see it’s more important than ever for professionals to align themselves with specialists who can assist in answering those tricky in-depth questions, and to ensure they are educated in all of the new requirements. In particular, we found professionals who only deal with a few SMSFs have found it particularly hard to be across all of the new requirements. Similarly, advisers now need to understand these concepts around ECPI and segregation, traditionally the realm of the accountant, to ensure their advice, such as sale of assets and commencing pensions, doesn’t adversely impact client tax outcomes. The second challenge will be the outcomes of the royal commission. So it’s important Australian retirees have trust in financial professionals and product providers so they will seek financial advice at important times in their lives such as retirement.
If you could change one thing about the SMSF industry, what would it be and why?
I think the vast amount of accountants and advisers providing services to the SMSF industry are doing the right thing. However, there do remain some, such as those examples we saw in the royal commission as well as property spruikers, that bring down the reputation of advice in our industry. I think it would be great for that not to be the case. And it is encouraging to see the continued focus by the tax office, government and professional bodies such as the SMSF Association to improve standards of professionals working in our industry and imposing penalties for those who have done the wrong thing.
