NetActuary

Pre-Christmas Sale!

We have really enjoyed helping administrators and trustees with defined pension actuarial reports this year.  We have our systems and procedures fine tuned and have decided to pass that efficiency on in the form of a permanent reduction of the fee to $275 (inclusive of GST) per report.  However, there is one final period up to the Centrelink end of year cut off to finish any remaining outstanding adequacy and tax-exempt percentage reports for these legacy pensions.  Until the end of December 2018 we offer what we believe is the lowest fee for this service in Australia - $220 inclusive of GST!

There are a number of additional advantages in our service.  In the actuarial report return email we have been commenting upon issues that the client could consider which could enhance the structure and appropriateness of their retirement arrangements.  We need no data forms filled in – simply email us the previous actuarial report and the accounts trial balance.  If you would like to take up this offer, email them through and we will get the reports back to you quickly.

If you would like to discuss any aspect of this, please ‘phone Brian on (03) 6224 1145.

Legacy Pension Spring Clean Sale!!

One of the most worthwhile aspects of issuing the actuarial tax certificates again is not the primary task – but rather being able to highlight areas that are in the client’s best interest to consider.  This is particularly true of legacy pensions.  A significant proportion of these pensions could: achieve a better tax outcome; redirect resources towards producing retirement income not adequacy reserves; plan ahead for neglected reserves; consider updating reserves for new life expectancies etc.  The covering notes to our actuarial reports comment on these broader issue items.

NetActuary would like to be the SMSF legacy pension specialist.  To that aim, we would like to facilitate a “Spring Clean” of legacy pensions with a Springtime sale.  All legacy pension
report requests received before 9^th September, 2018 will enjoy a 50% fee reduction!  Instead of our usual $396 (inclusive of GST), the fee will only be $198 (inclusive of GST).

Instead of filling in the request form, simply forward the most recent actuarial report together with this year’s draft accounts to brian@netactuary.com.au.  If there are any major non-uniform transactions, that would also be useful information.

If you would like to discuss any aspect, please feel most welcome to ‘phone Brian on (03) 6224 1145 for a chat.

The NetActuary Team

ECPI and Death of a Member

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

Ensuring Correct SMSF Tax Outcomes

While NetActuary will diligently work to ensure administrators achieve appropriate ECPI outcomes taking recent changes into account, this note will provide useful background information – especially with “deemed segregation” and “disregarded small fund assets”.  No comments will be included below on funds that include legacy defined pensions (a separate note will be prepared for those).

 

Elected or Deemed Segregation

Until the 2017/18 year it was common practice to issue an unsegregated actuarial certificate as long as there was an accumulation account at some stage in the financial year.  The ATO’s view – which they will now enforce from the 2017/18 and subsequent years – is that one can have segregation under sec 295.385 of the ITAA 1997, even if the period fully in retirement phase is for only part of a year.  Consequently, one can have both segregated and unsegregated components in the same financial year.  In fact, one can have a number of segregated periods, each having to be separately accounted for – including asset revaluations – but only one residual unsegregated actuarial certificate.  The extra administrative effort can be avoided (which may or may not be in the client’s best interest).

Elected segregation is the old fashioned, conscious decision to segregate and separately account for some of the assets.

We need to be careful about what is exempt and what is not.  A new term – “retirement phase liabilities” has been introduced.  So, we have:

Retirement phase liabilities being:

• Account based pensions
• Market-linked income streams
• Transitional retirement income streams (TRIS) in retirement phase; and

Non-Retirement phase liabilities being:

• Accumulation account
• A Reserve Account
• A TRIS not in retirement phase.

A TRIS is in retirement phase and counts towards tax free earnings after age 65 or once the trustee has been notified that a nil cashing restriction condition of release has been satisfied.  A Transfer Balance Account credit notification must be made.  The TRIS in retirement phase is still not an ABP, although some practitioners feel this should be fixed up.  The same applies to issues around death benefit income streams.

 

Disregarded Small Fund Assets

If at 30/06/2017 (and each subsequent period) a member was in retirement phase and had a Total Superannuation Balance (TSB) above $1.6m in any fund and there was a retirement phase benefit in the fund at any time in 2017/18, the SMSF is classified as having “Disregarded Small Fund Assets”.  In this situation the fund is not allowed to use the segregated method for ECPI.  One will note that is necessary to ask clients what their superannuation assets are in all their funds.  Unsegregated assets are covered in section s295.390 of ITAA 1997.  If the trustees want to claim ECPI they need to get an actuarial certificate.  The calculated ECPI proportion applies to assessable income and net capital gains earned on assets which were not segregated.  Where the value of pension assets has grown above $1.6m it is possible that an actuarial certificate is needed – even if solely in pensions i.e. 100% exempt.

 

Avoiding Deemed Assets

Having to account for and revalue assets for a number of periods within a year is more administration work.  This can be avoided if (say) $100 was kept in an accumulation account at all times during the year.

The issue is that – just like the elected segregation – one or other option may give a better tax outcome.  If there are non-uniform gains or losses e.g. a property sale, the extra administration may be worth it.  Even items such as dividends may not be uniform over the year.  This area is interesting but more of a strategic plan ahead issue rather than an actuarial certificate production issue.    There are many actions that optimize tax and TBC outcomes.  These can be as simple as making pension commencements and Lump Sum Accumulation withdrawals early in the year and contributions late in the year.  From a TBC perspective, it’s better to have amounts above minimum payment requirements as a commutation, not as a pension.

The unsegregated ECPI percentage is used also to claim an expense deduction.  It is important to observe we are talking about tax calculations and the trustees may adopt a different approach for member allocations.

 

Keeping It Simple

Most funds will not have the above issues.  An innovation on the NetActuary data-forms (and in evaluating the SMSF admin general ledgers submitted) is only to ask the usually required questions and have a “less usual” checklist advice.  These are also the areas we watch out for in that they may affect outcomes and require more information.

• Are there legacy defined pensions?                    
• Is there “deemed or elected segregation” in the year?     
• Are there “disregarded small fund assets”?      
• Did the fund commence or wind up in the year?               
• Does the fund have a reserve account?           
• Is there any non-arms length income?
• Did a member pass away during the year or have insurance proceeds been received?       

 

NetActuary is the renamed company in the previous Bendzulla group of companies that provided actuarial certificates.  In recommencing these services, we have the ambition to be the pre-eminent source of quality support for the area.  That includes funds with legacy defined pensions.

Please ‘phone Brian Bendzulla on (03) 6224 1145 if we can help.

COME CELEBRATE WITH NETACTUARY

NetActuary is back in the SMSF Actuarial certificate business! Yes, this has been a long wait!! That is even more reason for a celebration you too can share.

A number of initiatives are planned for the coming months. As an opening special all account-based pension actuarial certificates submitted in the first week of July will be processed for a fee of only $11 inclusive of gst.

The 2017-18 actuarial certificates need a different approach to previous years. It is no longer adequate to mechanically process them. Many fund circumstances have alternative possible approaches and strategies that need to be evaluated to determine which is in the client’s best interest. While NetActuary will use extensive production system support, this will be combined with a careful actuarial judgement. All calculations will be undertaken personally by the qualified actuary who signs the certificate. The turnaround will be prompt, but always subject to what needs to be done.

Will this cost more. No!! Our account-based pension actuarial certificate maximum price will be $132 inclusive of gst. There will be a guarantee of no fee increases in the next two years. Lodgement is simple – on NetActuary.com.au is a data form or simply send us the general ledger download from any of the SMSF accounting systems.

We also have a profound interest in helping with all types of legacy pension aspects including actuarial adequacy and tax exemption reports. For more information see the website or phone Brian Bendzulla on 03-6224 1145.

 

 

 

 

Good ♦ Cheap ♦ Fast Actuarial Certificates

Yesterday a person asked me what were “disregarded small funds assets” and their relevance to actuarial certificates for exempt current pension income.  In essence, where you have a complying SMSF with at least one superannuation interest in retirement phase AND just before the start of the year one person had a total superannuation balance that exceeded $1.6 million across all funds, then those assets in the SMSF are disregarded small fund assets.  Such a fund is not allowed to use the segregated approach. 

Actuarial certificates for 2017-18 are different to earlier years.  NetActuary will not be one of those certificate suppliers promising the return within minutes.  We will be returning the certificate in the time it takes to do the job properly.  That may be 2 minutes – or it may be 2 days if we see circumstances that warrant a discussion with the administrator. 

The NHS in the UK runs a strict time scale implementation.  An appointment is 10 minutes.  They are proud that a 9.22 minute average is achieved.  A person is only allowed to raise one condition per consultation.  What they don’t highlight is that one in six diagnoses are incorrect!  For many, that error is not major – but it is for the 750 NHS patients that die an avoidable death each month.  It may not even be cost efficient with malpractice settlements now exceeding £1.5 billion per year. 

NetActuary’s new actuarial certificate service – commencing at the end of next month –  will focus on achieving good quality outcomes.  We visualise working closely with users of our service.  We know that one can structure SMSFs in different ways that can result in different tax outcomes.  Leaving a small accumulation account would allow one (in some instances) to utilize an unsegregated only approach.  This may be better or worse than the alternative.  It worries me that this over emphasis on turnaround and cost will lead to fully automated processing and poor outcomes. 

It is ironic that I was instrumental in the big push to use digital processing to reduce costs and speed up processing, but now am taking a stance that more judgement and consideration is needed with the production of actuarial certificates.  The actual work and results of NetActuary’s actuarial certificates will be only undertaken by qualified signing actuaries – not junior processing staff. 

If you would like your actuarial certificates prepared on a “quality outcome” and not “time production” basis, please drop me an email and I will ensure you receive information on this topic.

 

Brian Bendzulla

Different Actuarial Certificate Services

This blog has been prompted by watching David Busoli’s video about the “strategic admin” focus for his new SMSF Alliance firm.  The same applies to actuarial certificates.  Whilst one keeps the low costs and processing speed gains of recent years, we find ourselves in a climate where a client’s best interests will require services that incorporate skilled, experienced and sound judgements delivery.

Let me elaborate with a few examples.  The ATO’s view for 2017-18 (that will need to be respected) is that an SMSF may have Exempt Current Pension Income with both segregated and unsegregated periods.  A two person fund could start with one pension account and one accumulation account.  That is unsegregated.  A few months later, the second person also goes into pension mode.  That is segregated. Finally, in June of the same year a contribution is made i.e. back to unsegregated.  One could avoid the problem by keeping a small accumulation account for the whole year.  Alternatively, each period could be separately accounted for which will push up admin costs or – the one NetActuary has been discussing – enhancing the crediting policy to have interim crediting rates to simplify the record keeping.  So not only is strategic admin needed, but strategic actuarial services are required.

NetActuary is going to achieve that by providing a different type of actuarial certificate service.  The actuary signing the certificate will also be the person calculating the ECPI percentage.  It is not simply going to be churned out of some excel or web system.  Will this cost more?  No – our 2017-18 actuarial certificates (processed from 1^st July this year) will cost $132 including GST.  Defined benefit legacy pension adequacy reports incorporating the ECPI calculation will cost $396 inclusive of GST.  Please note these prices are inclusive of GST and will be fixed at this rate throughout 2018-19 and 2019-20.

Another example will show why experience and judgement is needed.  From 01/07/2017 the only capped defined benefit income streams are lifetime pensions and annuities.  Previously this group included life expectancy and market linked pensions.  A better tax outcome may be possible by “refreshing” the contract.  I see so many other examples with legacy pensions of reserves not being managed properly or durations about to expire.  It’s scary how inappropriate some of these situations are.  At the very least, I think as accountants and actuaries we need to make a general comment to a client where some review by a planner is needed.  The client – whilst acknowledging it’s not an accounting or actuarial responsibility – is going to want to know why their attention had not been drawn to aspects needing review.

I could go on for pages with examples of allocation, tax, transfer balance cap, minimum pension payments, disallowed contributions etc.  The type of client NetActuary seeks is one where we become a useful resource to your firm and these matters are discussed and implemented before it is too late to achieve a great outcome for the client.  I have no wish to recreate the volume and scale of the Bendzulla Actuarial operation I sold.  The focus is going to be on quality, value for money and personal service – not volume.

If you would like NetActuary to be your actuarial certificate provider for 2017-28, I offer to review (without charge) all of your 2016-17 actuarial reports/certificates and provide a list of actions that would be beneficial to implement before the end of the financial year arrives.

 

Brian Bendzulla

A Super Life is More Than Super

A retirement plan is important – but shorter-term family expenditure needs and lifestyle ambitions can make it look too difficult to tackle.  Clients need to be able to see the whole picture – where mortgages are paid off and private school fees don’t wipe out disposable income. 

NetActuary has developed a suite of calculators to facilitate getting clients engaged with the trade-offs of having both shorter-term fun and longer-term retirement security.

The projections start with a calculation of assets needed at retirement to support a desired level of retirement income and retirement age.  Next, current superannuation assets and existing SG/superannuation contributions are accumulated to see the task ahead.  There will be many times where there will be a funding gap.  Here, the third important calculator of long term, net of tax and shorter-term objectives, investible funds is projected.  The pattern is usually one of increasing capacity to save as retirement approaches.  It is encouraging for clients to take an active role with their advisor to manage their finances in a more sophisticated manner.

NetActuary is making available Excel/VBA workbooks to undertake these tasks.  Excel is ideal because it allows the master copy to be quickly modified and links into Word SoA generation.  So, the toolkit area of our website will have a new lost-cost calculator to download every week or so.  The first will deal with pre-retirement planning tools!

 

Brian Bendzulla

Less Complex Super Admin

There is no doubt that recent changes have made SMSF administration and management a lot more complex.  This blog considers measures that can be taken to make Exempt Current Pension Income (ECPI) aspects less onerous administratively.

For the 2017/18 financial year, the ATO will enforce it’s view that where a fund is solely supporting pension liabilities one must treat that period as segregated.  One could then end up with an unsegregated and segregated period with the actuary’s ECPI percentage certificate for only part of a year.  This could greatly increase accounting requirements.

NetActuary is recommencing ECPI actuarial certificates in six months’ time.  Consequently, we are designing the new system from first principles to make the implementation less complex from a superannuation administration perspective.  We invite contact from administrators of all sizes looking at efficiencies.  The 2017/18 financial year transactions are already half complete – so here are some ideas to be considered.

I have seen industry comment that three sets of accounts could be needed etc.  This misses the point that what we want is the value of the account at a transaction date e.g. pension commencement.  A standard approach in large fund administration – before unitization predominated – was to have an “interim crediting rate”.  This is used without revision for (say) an exit or pension commencement.  So, administration could be simplified by enhancing the SMSF’s crediting and reserving policy.

Many funds could have benefits in pension phase but occasional additional contributions.  Where this is anticipated, by leaving a small accumulation balance for the full year the current full year unsegregated approach can be continued.  In fact, from 01/07/2017 a SMSF can’t use the segregated method where: at least one member has a retirement phase interest in the fund; the member has total superannuation exceeding $1.6m at 30 June in the period year; that same member was receiving a retirement phase pension just before the start of the year; and the same member had a super interest in the fund at any time during the year.

A third idea is applicable to situations where there are defined and account based pensions only.  If the defined pension – subject to other objectives – is converted to a market linked/TAP pension, it may be possible to eliminate actuarial reports all together.

Many years ago, I initiated a trend to use technology to reduce the cost and speed up the production of actuarial certificates.  Without diminishing those advantages, NetActuary wants to again be the leader in a new trend – to use the actuarial report to be supportive of good SMSF management.  NetActuary reports will have the signing actuary undertaking the actual task.  We invite contact from firms wanting advanced planning in ensuring this objective by examining how the new legislative requirements fit into workflow.  An example would be a report to cover both segregated and unsegregated periods, with interim crediting rates for net earnings allocations, besides the formal actuarial report for the unsegregated period. 

Give Brian a call on (03) 6224 1145 if this is of interest.

 

Brian Bendzulla

Superannuation Competence and Proactivity

I like this time of the year.  Besides plenty of Christmas pudding and desserts, it is a good time for reflection and planning business strategies for 2018. 

Superannuation administrators, financial planners and auditors need a high level of competency and proactivity if they are going to act in their clients’ best interests.  Acting in the clients’ best interests is also in the best interests of the business.  NetActuary is going to refocus its work to assist you in meeting that objective. 

I was reflecting on how eight to ten years ago my priority was to use digital disruption to create a better situation for administrators with faster and cheaper tax exemption actuarial certificates.  They were interesting times.  Actuarial certificates (in terms of price and speed) have reached maximum evolution.  NetActuary will be recommencing these services in 200 days but it will have a new focus – a the use of actuarial certificates to drive improved outcomes for superannuation members. 

You don’t have to wait that long.  Market-linked pensions need to be revisited – and soon if the optimal conversion factors are to be obtained.  Let’s use an example.  A person has had a market linked pension for many years.  At 30/06/2017 it had $1,200,000 in in assets and 18y 3m remaining term. 

Current Treatment

Value of Account	$1,200,000
Pension Amount 2017/18	$90,978	($1.2m / 13.19)
Transfer Balance Cap Value	$1,728,582	(i.e. $90,978 x 19)

 

It is possible to rollback and recommence – not as a capped defined income stream but on the normal account value basis.  The rollback would be 18 x 90,978 = $1,637,604.  If one doesn’t delay, it may be possible to rollback the full $1,728,582 in some cases.  This would allow $400,000 of accumulation monies to be added to tax free investment earnings pool. 

To be blunt, your inaction on this matter could compromise your clients’ best interests with regard to tax efficiency.  I would suggest reviewing all your market linked pension clients as soon as possible.  If you need a hand to put a report together, NetActuary would be happy to assist for a very modest fee.
 

Brian Bendzulla