In recent weeks I have noticed a number of market linked pension calculations that are incorrect. Consequently, now is a good time to record a few issues to look at.
The minimum pension payment relief is built directly into the SIS Regulations. Since there is a plus and minus 10% margin allowed for when 50% pension relief applied, the formula for the minimum becomes 45% x Account Balance/Pension Factor. The maximum is 110%. For the 2011/12 financial year the minimum is 67.5% i.e. 75% x 90%. The rounding is to the nearer $10 but rounding up would be prudent as the consequences of not meeting the minimum are dire.
It is not possible to just change the term of market linked pensions without consequences. The remaining term is based on the original term minus the payment period so far. Please, when you are checking the original terms remember these are different before and after 1st January, 2006. At that date there was an extension of duration from being based on life expectancy rounded to the higher year (or 5 years younger) to include spouses – if reversionary – and terms to age 100.
If the duration is altered, then not only are the market linked duration rules required to be satisfied but the new pension payment rules would also have to be met. In addition, the Centrelink asset test exemption will be lost.
For more information – and the pension factors – please see the Reference tab on the NetActuary website.
The NetActuary Team