You will notice that the NetActuary ECPI data-form identifies situations that need careful consideration. One of these is when a member has died. This blog provides some background information about how ECPI will be calculated in that eventuality.
If the account-based pension is reversionary, the ECPI entitlement continues on the assessable income from the assets backing that pension in the same way that the pension continues. In other cases where the amount for the death benefit (lump sum or new pension commenced) is only the account balance, the ECPI continues until it is “as soon as practical to pay the benefit”. This provision was introduced in an amended definition introduced by the Income Tax Amendment (Superannuation Measures) No 1 Regulation 2013 to apply to the 2012/13 (and subsequent) income years.
We don’t need to consider anti-detriment amounts, but insurance proceeds don’t have this concession. Income from these proceeds are not tax free in the period to payment. No minimum pension payment is required for the period up to death. If the pension is auto-reversionary, then the minimum payment is required by the end of financial year.
The phrase “as soon as was practical” is not defined by law, however the ATO appears to accept a period not exceeding 6 months from the date of death as acceptable.
With legacy pensions, careful consideration is needed. One of the instances envisaged in TR2013/5 was a superannuation income stream will cease if a provision in the governing rules provides for it to cease. Consequently, with a section 1.06(2) lifetime pension it is likely that the pension and the ECPI will cease when the pensioner passes away if there is no reversion. The assets backing the lifetime pension are released to reserves. Use of those reserves would be under contribution/reserve allocation provisions, not death benefits. On the other hand, a section 1.06(7) Life Expectancy pension has the residual benefit of remaining payments outstanding and has an arguable case for continuing ECPI.
The above shows why it would not be prudent to process actuarial certificates merely from a filled in date of death.
I am impressed with the number of trustees/advisers who took up the NetActuary $11 special. Yes, it did cover earlier financial years. Please give me a day or two to catch up and also launch the NetActuary property analysis toolkit and we will run another special on actuarial certificates.
Brian Bendzulla