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Life Expectancy Pension Expiry

Many Life Expectancy complying pensions are reaching the end of the road with regard to payment durations. When this happens, if there are no other defined pensions, no adequacy certification is needed at year end – only the Exempt Current Pension Income (ECPI) percentage certificate.

NetActuary has the systems set up to calculate the final defined/account based transition.

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In subsequent years, the ECPI certificate is based on start of year retirement phase/non-retirement phase accounts plus member level transactions. These can be allocation from reserves, contributions, pension and lump sum payments. Many items are year end allocations such as investment income and expenses, and these have no impact on the calculated percentage.

The issues with these funds in subsequent years is usually reserve allocations. If the allocated amount grossed up by 1.176 exceeds $25,000 then the excess contributions are included in personal taxable income and taxed at the marginal tax rate plus an excess concessional contribution charge. The latter is a recognition of timing differences and is currently 3.1% p.a. calculated daily. It may (depending on other assessable income) be worthwhile to exceed the $25,000 cap to speed up the reserve allocation. Transfer Balance Cap issues also need to be considered. If one supplements the crediting rate, then this will also be counted towards the excess contribution cap.

This scenario doesn’t fit the usual admin/automated certificate systems. At NetActuary, we can work from the last actuarial report and then draft general ledger. The cost is $77 inclusive of GST.

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Email: Brian@NetActuary.com.au
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