SMSF members making a contribution late in the year to maximise exempt current pension income (ECPI) should be advised an earlier move may be a better option when considering their tax position outside of the fund, an SMSF actuary has highlighted.
Lime Actuarial founder and director Greg Einfeld said the accepted wisdom was a late contribution would deliver a better outcome for ECPI purposes and this was often correctly stated by actuaries in the SMSF sector but he said non-super tax rates may be driver to take action sooner.
“The logic behind that is the ECPI percentage that appears on your actuarial certificate is going to be higher when you contribute late in the financial year. It’s higher because you’re keeping the accumulation balance down, so the pension balance is a higher proportion of the total,” he said during an online presentation yesterday.
“If all you’re trying to do is maximise the ECPI percentage on your certificate, that is the right thing to do. That’s not just an opinion, that’s a fact.
“However, you can’t spend ECPI percentage. It’s a means to an end, and the way I approach this is to look more broadly at the member’s overall financial position.
“If you’re contributing late in the financial year, that money has to sit somewhere else throughout the financial year – probably in your personal bank account or invested in your own name, and you will be paying tax on that outside superannuation at your marginal tax rate.
“Most people that are actively contributing to superannuation probably have a marginal tax rate higher than 15 per cent so if it’s a choice between having that money sitting under your personal ownership and paying the marginal tax rate plus Medicare, or having the money in super where you are being taxed at 15 per cent, I would rather have it sitting in super.
“I have a different view here compared to other actuaries and that’s because I’m looking at this from a holistic financial perspective, not just at the SMSF or ECPI percentage on its own.”
