Centrelink made two Social Security determinations that apply from 21 December 2012 that may be problematic for any SMSF holders of Lifetime or Life Expectancy legacy defined pensions.
In essence, the troublesome provision is that unless Centrelink receive a high probability actuarial certificate within the prescribed period, they will automatically regard the income stream as being an asset-tested long term income stream.
The prescribed period in relation to a financial year is certification within 26 weeks of the beginning of the year and provided to the Department of Human Services by the trustee of the fund within 29 weeks beginning on 1 July. The actuarial certificate should be based on the fund’s financial statements for the previous financial year and also specify that it is in force for the full financial year (1 July to 30 June) of the financial year in which certification occurs.
The loss of the asset test in many cases will not be huge issue. Many of these legacy pensions have the income test now dominant and/or assets have started to run down. Making the adequacy reserves productively provide income rather than tax inefficient reserves simply being there to provide regulatory comfort, could also enhance the member’s standard of sustainable retirement income. The problem will be if the particular Centrelink office reassesses the previous 5 years of pensions and raises a debt.
If there are any legacy pensions still outstanding for clients, then a problem now exists. The solution may be to put in a conversion notification to a market linked pension. For that we know that relief has been granted from a debt being raised.
Please if you have an example of how Centrelink is using these new determinations, would you leave a comment below for the benefit of all retirees?
The NetActuary Team