Treasury has released today draft regulations for situations that will not require an Actuary's Certificate for Exempt Current Pension Income claims. Individuals and firms have until 10 February 2017 to make a submission and comments. If I read it correctly, from the 2017-18 year this certificate will not be required if the only income streams are those in retirement phase and are either account based pensions; market linked pensions or allocated pensions. However these are only draft regulations at this stage and I am sure many parties will want to make a submission. The arguments will centre on the value of an independent party (the actuary) doing the calculations verses the convenience of it (with usually a calculator) being simply part of the administrative function. If the regulations go ahead and since the calculations are a simple time weighting of cash flows, there will soon be a number of such calculators available to administrators. In fact some actuarial certificate suppliers are already providing an immediate draft online percentage to enable administration to proceed without delay.
Below is the relevant section of the Treasury EM:
Exception to the requirement to obtain an actuary’s certificate
Item 4 in Schedule 1 to the Regulation prescribes particular superannuation income stream benefits for the purposes of subsection 295-390(7) of the ITAA 1997.
The Amending Act made changes to prevent self-managed super funds and APRA regulated funds with less than 5 members from using the exemption in section 295‑385 of the ITAA 1997 (the ‘segregated’ method) if any member of the fund has a total superannuation balance of more than $1.6 million (see section 295‑387 of the ITAA 1997). These changes were introduced for integrity reasons to ensure that funds are unable to circumvent the transfer balance cap by periodically reallocating assets as segregated assets (the income of which receive a full earnings tax exemption). Funds that are unable to use the segregated method are still permitted to use the exemption in section 295-390 of the ITAA 1997 (the ‘proportionate method’).
In recognition of the fact that more funds will be required to use the proportionate method, item 4 in Schedule 1 to the Regulation prescribes a number of superannuation income stream benefits to provide an exemption from the requirement to obtain an actuary’s certificate in applying the proportionate method. This requirement stipulates that in working out the proportion of particular liabilities that are currently payable, a fund must obtain an actuary’s certificate certifying that particular liabilities are equal to the fund assets, as well as expected earnings on those assets and future contributions (see subsections 295-390(4) and (5)).
As a result of these amendments, superannuation income stream benefits that are ‘retirement phase superannuation income stream benefits’ are prescribed for the purposes of subsection 295-390(7) of the ITAA 1997 (see paragraph 295-390.01(a) of the ITAR 1997) if they are, within the meaning of the SISR 1994, payable from allocated pensions, market linked pensions, or account-based pensions.
The amendments also prescribe death benefits paid to a beneficiary from a pension of these kinds that was paid to the deceased prior to their death (see paragraph 295.390.01(b) of the ITAR 1997). In order for such benefits to be prescribed, the deceased must have been a retirement phase recipient in respect of the interest.
Provided that all of a fund’s currently payable liabilities are in respect of allocated pensions, market linked pensions or account-based pensions (or a death benefit pension based on any of these), the fund will not need to obtain an actuary’s certificate. For this requirement to be satisfied, the amount of the fund’s currently payable liabilities are worked out in applying the formula in the proportionate method must be equal to the sum total of all of its pension phase account balances. A fund will not be eligible for the exemption from obtaining an actuary’s certificate if any part of its currently payable liabilities relate to other things (for example, another type of superannuation income stream).
The types of superannuation income streams that are prescribed are consistent with those that are already prescribed for the segregation method. This means that funds that are required to shift from the segregated method to the proportionate method will be able to claim an exemption from the requirement to obtain an actuary’s certificate that is similar to the exemption that applies to the segregated method.
The Regulations also make some minor changes to the existing rules in regulation 295-385.01 of the ITAR 1997 that prescribe superannuation income stream benefits for the purposes of the exception to the actuary certificate requirement for the segregated method. Consistent with the approach taken in item 4, these changes update the reference from ‘superannuation income stream benefits’ to ‘retirement phase superannuation income stream benefit of a superannuation fund’ (see item 2). This means that in addition to being a superannuation income stream benefit, the benefit must also be in respect of an income stream that is in the retirement phase. Item 3 makes further changes to the regulation to ensure that the deceased was a retirement phase recipient in respect of the prescribed income stream.
These rules apply to the 2017-18 income year and later income years, consistent with the application of the proportionate exemption in section 295-385 of the ITAA 1997.
The NetActuary Team