Heffron | 100% pension fund with contributions - do I need an actuarial certificate?

100% pension fund with contributions - do I need an actuarial certificate?

In the new world of calculating exempt current pension income, if your 100% pension fund receives a contribution, and a new pension is commenced with that amount immediately on receipt, do you need an actuarial certificate?

For the purpose of the following discussion, the term ‘pension’ is referring only to income streams in the retirement phase.

Fund not eligible to segregate

Where a fund is ineligible to segregate for tax purposes, for example due to a pensioner having a total superannuation balance (TSB) of greater than $1.6m at the previous 30 June, an actuarial certificate will always be required to claim any exempt current pension income (ECPI).

Any such certificate will cover the entire financial year, and the receipt of a contribution moved immediately into pension phase will have no impact on the exemption percentage.

Fund eligible to segregate

Where a fund is eligible to segregate for tax purposes (no member in receipt of a pension had a TSB =>$1.6m at the previous 30 June), it must do so.  For this type of fund, the receipt of a contribution will cause it to move from totally supporting pension accounts to supporting both pension and accumulation accounts, albeit only for part of a day.

That means, under the current legislation, if there was income generated on the day of the contribution, you would expect that an actuarial certificate should be obtained to exempt some of this income.  However, whilst this may be the technically correct answer, the SMSF specific software programs do not allocate income or losses on an hourly basis and they do not cater for a part-day segregated period.  Thus, the systems will treat the fund as being in pension phase for the entire year and no actuarial certificate is required.

Notwithstanding the above, if there was income earned on the day of the contribution, to avoid any doubt, we would recommend that the contribution is held in a sub-account, separate from all other assets during its period in accumulation phase.

In contrast, if no income is earned on the day of the contribution, both the practical and technical approaches would result in the same outcome.  There is no need to obtain an actuarial certificate as there is no income to apply the certificate to.