ECPI red tape reduction endorsed

actuarial certificate

Removing the need to obtain an actuarial certificate for claiming exempt current pension income in some circumstances has been applauded.

The draft legislation incorporating the proposed changes to the process of claiming exempt current pension income (ECPI) for SMSFs with disregarded small fund assets (DSFA) may not impact a large number of funds, but is still a welcome reduction to administrative red tape, a technical expert has said.

The draft bill released last Friday makes it no longer necessary for SMSFs using the proportionate method to calculate ECPI to have to obtain an actuarial certificate when all of its members are solely in retirement phase.

“SMSFs will experience this currently if they’re solely in retirement phase and they have disregarded small fund assets typically because a member has a total super balance above $1.6 million,” Accurium SMSF technical services manager Melanie Dunn told delegates at the SMSFPD Digital 2021 event hosted by selfmanagedsuper yesterday.

However, Dunn pointed out an analysis of her firm’s actuarial certificate data for 2019 indicated the legislative amendment was unlikely to impact a significant number of SMSFs.

“Looking at our data for actuarial certificates, what we found was over 50 per cent – 56 per cent – of funds which applied for an actuarial certificate identified as having disregarded small fund assets. However, fewer than 1 per cent of funds had disregarded small fund assets and were solely in the retirement phase and therefore would hit this roadblock,” she revealed.

“Overall we estimate around 0.15 per cent of SMSFs would have faced this redundant requirement, however, it is a welcome measure to remove red tape for funds impacted by this [anomaly] in the regulations.”

She took the opportunity to acknowledge the DSFA rules are still causing significant confusion among SMSF trustees and emphasised the need for advisers to assist their clients with this issue.

“I just [want to] reiterate here the importance of understanding how you [determine] if your fund has disregarded small fund assets and how you report that to the actuaries because it’s really important [as to] how we calculate your exempt income proportion,” she said.

“So I would encourage you to review those processes and make sure you are reporting the disregarded small fund asset status of your funds correctly.”

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