One ECPI rule still confuses

ECPI small fund assets

Practical evidence suggests the disregarded small fund assets component of the exempt current pension income rules (ECPI) is continuing to cause confusion.

A research paper compiled by actuarial certificate provider Accurium has found the disregarded small fund assets rule relating to the calculation of exempt current pension income (ECPI) is continuing to cause confusion in the SMSF sector.

When analysing the data it gathered for the 2019 financial year, Accurium discovered 56 per cent of SMSFs that applied for an actuarial certificate declared the fund had disregarded small fund assets. This means at least one member of the SMSF had a total super balance (TSB) of $1.6 million and a retirement-phase account at 30 June of the prior financial year.

While the number of funds with disregarded small fund assets was very high, Accurium SMSF technical services manager Melanie Dunn pointed out it was the additional information disclosed by 20 per cent of this group that was cause for potential concern.

“[These SMSFs] also [reported] no member in the fund with a balance of at least $1.6 million. So despite [checking] the box that [says] there was a member with [a TSB of] more than $1.6 million, [that individual] didn’t have that much in the SMSF,” Dunn said during an Accurium webinar today.

“So this … suggests that quite a significant proportion of SMSF retirees have assets outside their SMSF. [The assets are] still in superannuation but in other funds that are contributing towards that total super balance of $1.6 million.

“Or perhaps [it suggests] some funds are misreporting the disregarded small fund assets, which could in turn lead to an incorrect ECPI calculation if the fund has periods where they are solely in the retirement-age phase.

“So we do see that these rules continue to be a source of confusion when applying for actuarial certificates.”

As a method of addressing the situation, she suggested advisers review how they are reporting the status of any SMSF with disregarded small fund assets, while paying specific attention to the different method each administrative platform has for divulging these situations.

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