Old certificate can be used for proxy values

actuarial certificate pension

An old actuarial certificate may be used to calculate a fund’s tax position if a new one is unobtainable where minimal change has taken place.

An SMSF attempting to calculate a member’s pension balance part way through the year but lacking an actuarial certificate may be able to use the one issued for the previous year to get a proxy figure for the fund’s tax exemption for that period, according to a technical specialist.

Heffron head of SMSF technical and education services Lyn Formica acknowledged SMSFs calculating a member’s balance part way through a year, for the purpose of a pension commutation, can get caught in a loop in regards to the certificate and what the fund’s tax exemption might be for the period before the commutation.

“If we are going to have a commutation from one of our pensions, before we process that commutation, we’ll need to do an update [to the pension balances and member benefits],” Formica said during a technical question and answer session today.

“As part of doing that update, the pension information is not going to be 100 per cent accurate, if we don’t have the funds actuarial certificate percentage included in the system.

“We don’t know what the actuarial certificate percentages because of course, we haven’t processed all the entries on the certificate yet, so we are stuck in this circle.

Formica said SMSFs could escape the loop by using last year’s actuarial certificate percentage as a proxy for what the current year’s percentage might be except where significant change had taken place within the fund.

“What we normally do is use last year’s certificate value to do our period update to process our commutations,” she explained.

“Following this, we would not then process the fund for the year, get the certificate, and then backtrack and unwind all of those commutations and process them again, using the new actuarial certificate value.

“The reason for that is usually it will not make any material difference because this is not distorting our tax calculation in any way.

“We are still paying the right amount of tax and this process will change slightly how much of the fund was in pension phase or accumulation phase at any particular point in time.

“So, it is quite acceptable to use last year’s percentage if that was a good approximate for this year’s percentage, process all your commutations, and then put your final certificate percentage in there to finalize the fund.

“You should still eyeball it at the end to make sure that everything looks right because sometimes it will be very obvious that you need to rewind some of those commutations because you’ve ended up with a negative value in the account somewhere but generally speaking, it should work out okay,” she concluded.

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