This Snippet has been largely reproduced from an article by Greg Einfeld of Lime Actuarial who has nailed the changes that have been made to the calculation of exempt pension income. Hopefully the regulators will apply some common sense where the result of the changes is just plain silly but that is yet to be seen.
The Actuarial Certificate now covers only periods where there are unsegregated assets in the fund. If the fund has “Disregarded Assets”, then all assets are deemed to be unsegregated for the entire year and the fund will require an Actuarial Certificate – even if the fund only held Account Based Pension assets throughout the year.
In case you aren’t familiar with the concept of Disregarded Assets – they are assets where on the previous 30 June (i) there was a member of the fund with a Total Superannuation Balance (including External super funds and including accumulation accounts) of over $1.6m, and (ii) that member has a Retirement Income Stream such as an Account Based Pension.
For example: If a member has $1.5m in an Account Based Pension in their SMSF, and $200,000 in Accumulation in a retail fund, then the SMSF will still require an Actuarial Certificate.
Another example: You start the year with $1.6m in an Account Based Pension and no accumulation balance. During the year the fund earns $100,000 and the drawdown is $80,000 so at the end of the year the balance is $1.62m, all in pension. While you haven’t exceeded your Transfer Balance Cap, the assets are disregarded. You will need an Actuarial Certificate.
In both the above examples the exempt percentage will be 100%.
Also note the changes in the period for which the Certificate applies. Suppose a fund is in Accumulation for the first half of the year, and then the member turns 65 and commences an Account Based Pension on 1 January. Assuming there are no disregarded assets, the fund will be unsegregated for the first half of the year and segregated for the second half. The Actuarial Certificate will only cover the first half of the year.
In this simple case the exempt percentage will be zero per cent as the Actuarial Certificate only covers the first half of the year when none of the income was exempt. All of the income will be exempt in the second half, but that is not covered by the actuarial certificate. Suppose the fund had invested in a unit trust that paid annual distributions on 30 June. All income from that unit trust will now be exempt. In the past, only 50% of income would have been exempt. In some cases this will work for you, in other cases against you.