We get a lot of technical questions from our clients and we’re always very happy to answer them. So we decided to start a new series called “Ask Lime” where you are going to ask us questions and not only will we give you the answer, we’ll share it with the broader SMSF community as well. Lime Actuarial is presented by our Founder, Principal, and Chief Actuary, Greg Einfeld.
Today’s question goes like this: Why is it that the ECPI that you have calculated is so low? I would have expected a much higher ECPI because the fund was in pension for most of the year.
Now there is two possible answers to this question and they both go back to 2017-18 when lot of the SMSF rules changed.
The first answer, which is the more likely one, is all about segregation. When all of the assets in the fund are in an Account-Based Pension or Retirement Income Stream at a particular point in time, then most likely the assets are considered to be segregated at that point in time. And when that’s the case, we don’t include that period of time in our calculations as now required by the ATO. So we separate that period of time out and we only perform our calculations when the assets are unsegregated.
So if we take an example, for the first 3 months of the year, the assets are all in Accumulation and then an Account-Based Pension is started on the 1st of October for the entire balance of the fund and for the remainder of the year all of the member balances are in Account-Based Pension. So going back prior to 2017, we would have said that the ECPI is 75% or thereabouts because for 3 quarters of the year the assets of the fund and the member balances are related to Account-Based Pension.
But now what we do is we separate the year into two parts. For the first 3 months, everything is in Accumulation. The ECPI for this part of the year is zero and this is what appears on our Actuarial Certificate. For the last nine months, the assets are all segregated so it is excluded from our calculations. You can still claim ECPI - 100% ECPI, for any income that is earned during that period. You just won’t see it on the Actuarial Certificate. So in this situation you are going to see zero ECPI on the Certificate. And as it turns out you don’t require the Certificate at all. It wouldn’t be the best use of your $100 + GST.
The second scenario is where you have a TRIS in the fund. So up until 2017 income from TRISs was exempt but now its not. And so if the pensions in the fund are all TRISs then you are not going to get any ECPI either.
If you would like to see this post in a video format, then please watch here.
So that’s today’s question. Feel free to send any more questions to me and I’ll be very happy to answer them in this forum! And we will be doing this around about once a month and we would be putting all of the videos on to YouTube and LinkedIn as well.
Thanks very much!
THIS ARTICLE WAS CORRECT AT THE TIME OF WRITING. SMSF RULES CHANGE OVER TIME AND THE ARTICLE MAY BE LESS RELEVANT IN THE FUTURE.
Greg Einfeld has over 20 years’ experience in the Australian Superannuation and Financial Services industry. He has MEc and MBA degrees, is a licensed financial adviser, a qualified actuary, and specialises in Self Managed Super Funds (SMSF’s). He regularly presents on a variety of SMSF topics including investment, tax, estate planning, pensions, administration and strategies.