Actuarial certificate maintains sector integrity

Treasury’s decision to uphold the requirement to obtain an actuarial certificate for unsegregated, or proportional, funds when claiming exempt current pension income (ECPI) has been applauded by SMSF industry executives, who have labelled the move a positive outcome for the sector’s integrity.

The Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017, issued on Monday, confirmed the need for an actuarial certificate to claim ECPI when the assets of an SMSF are not segregated.

However, the superannuation legislation passed last November suggested the certificate was not needed, which left uncertainty over the importance of these documents going forward.

A letter dated 28 March from Minister for Revenue and Financial Services Kelly O’Dwyer, obtained by selfmanagedsuper, stated: “The government decided not to progress with the regulation that proposed that funds with an account-based pension, or similar straight-forward pensions, no longer be required to obtain an actuarial certificate each year, stating the proportion of their income that was tax-exempt will not be progressed.

“This change was intended to reduce the costs for SMSFs. However, outcomes from the consultation suggests that costs of obtaining this certificate have reduced, and that ceasing the obligation may increase costs as the calculations will continue to need to be done.”

Lime Actuarial director Greg Einfeld said the government has made a sensible decision.

“The decision means the integrity in the system will be maintained by having actuaries overseeing these calculations,” Einfeld told selfmanagedsuper.

“Keep in mind that there’s nearly $20 billion of ECPI claimed every year, so having trusted professionals, such as actuaries, overseeing that can only be a good thing.

“And trustees and accountants will continue to have access to actuarial certificates that are low cost and easy to obtain, so everybody should be pleased with the outcome.”

Einfeld said the original draft legislation proposal received strong feedback from the SMSF industry.

“It was almost unanimous from a cross-section of industry bodies, accountants, auditors, other interested parties and, of course, actuaries that it would be a big mistake to remove the actuary’s role in performing that calculation,” he said.

“And Treasury has obviously taken on board that overwhelming feedback and has decided to leave actuarial certificates in place.”

He added the proposal to remove actuarial certificates was perhaps based on flawed assumptions made by Treasury.

“It was possible that Treasury had received feedback that perhaps it was possible to perform ECPI calculations in a very straightforward manner and that feedback has proven to be incorrect,” he said.

“But I would say there were a number of flawed assumptions that led to the proposal.

“One was around how much it costs to produce a certificate, one was around the time and effort that was involved in obtaining a certificate from an actuary and there was a flawed assumption around how easy it would be for other people apart from actuaries to produce these certificates going forward.

“Also there was an assumption made around whether accountants wanted to be putting these certificates together themselves, so when you put all that together, I think Treasury got a very clear message that the best thing to do is to leave the situation as it is.

“I expect that everyone will now accept the umpire’s decision and move onwards.”

SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said he believed the decision made by Treasury was going to happen regardless.

“I’d spoken to a number of trustees who had concerns around how their accountant was going to work it out and their accountant had said they would probably get an actuarial certificate anyway because the actuary will be able to calculate that average over the year,” Colley said.

“And I’m sure if that wasn’t the case, someone would develop software that would cover it if it wasn’t already there.

“It’s a reasonable outcome for many funds that are unsegregated, but it probably would’ve happened anyway.”

He added many accountants did not regard ECPI calculations as being a standard business practice.

“So virtually handing that over to the accountant or tax agent, that profession, was probably something that was a little bit foreign to them and they’d have to calculate it before the tax return was lodged,” he said.

“There are ways in which you can calculate the average that could make it biased one way or the other, but at least with using an actuary, they abide by actuarial standards, and actuarial certificates aren’t particularly expensive these days.”

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