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Law changes actuarial certificate relevance

The new superannuation legislation passed last month has changed the requirements for when an actuarial certificate is needed to claim tax-exempt pension income when the assets of an SMSF are not segregated, leaving uncertainty over the importance of these documents in the future, according to a sector technical specialist.

“The bill, when it came out, there were paragraphs in there that said if a fund is paying a pension and the only pension liabilities relate to an account-based pension, the fund will not need an actuarial certificate. That’s quite a bombshell,” SuperConcepts technical services executive manager Mark Ellem told the recent Institute of Public Accountants 2016 National Congress in Melbourne.

Ellem said the rationale behind the change could perhaps be interpreted in two ways.

“There is a question whether it is going that far as to remove actuarial certificate requirements for all funds or is it merely trying to resolve an anomaly in the law in relation to the segregated basis being unable to be used for funds with retired members who have more than $1.6 million,” he said.

The irregularity in question under the new rules is where an SMSF member is receiving a retirement income account from a super fund, not necessarily an SMSF, and the member has more than $1.6 million in retirement savings assets, and as such the SMSF that is only supporting a pension cannot use the segregated method.

As a result, the SMSF would be forced to use the unsegregated method and would need to obtain an actuarial certificate verifying 100 per cent of the assets of the fund are being used to support an income stream.

“So there is an argument the changes put in the bill are to cover off on that scenario to say the fund is still 100 per cent in pension mode, it’s not allowed to use the segregated basis, but because all the pension liabilities are for account-based pensions, you don’t need to go and get a certificate,” Ellem noted.

“So there are two schools of thought here – we don’t need a certificate to cover off on that anomaly when we’ve got 100 per cent of the fund in pension mode when the fund can’t use the segregated basis, or we go to the other extreme where we may no longer need actuarial certificates full stop when claiming exempt pension income and your liabilities are only account-based pensions.

“At the moment I believe we are waiting for clarification from Treasury on that.”

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