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What is an Actuarial Certificate?
An Actuarial Certificate is a legal document that states the proportion of a superannuation fund’s income that is exempt from tax.
When is an Actuarial Certificate required?
An Actuarial Certificate is required when a superannuation fund is paying a pension during the ‘retirement phase’, and there are also non-pension accounts in the fund.
If you are not intending to claim any tax benefits, an Actuarial Certificate is not a legal requirement. However, if you want to claim a percentage of your superannuation fund’s income as a tax benefit, then an Actuarial Certificate will be necessary.
What is ‘Retirement Phase’?
Superannuation has two phases:
- Accumulation - when members (or their employers) are making active contributions to the super fund.
- Retirement - when the member receives an income stream (or pension) from their super.
Once a member is receiving a pension from their super (in the Retirement phase), any income the fund generates from their assets is tax exempt. This phase occurs when the member:
- Reaches the age of 65.
- Meets the legislative requirements for retirement before the age of 65 and notifies the fund trustees of his or her retirement.
When is an Actuarial Certificate not needed?
An Actuarial Certificate is not needed if:
- The fund does not intend to claim an income tax exemption for the income supporting a pension.
- The assets of the fund are fully segregated for the whole year into pension and non-pension assets.
What does segregated mean?
Is an Actuarial Certificate required for a segregated superannuation fund?
Yes, but actuarial certificates are only required for a partially segregated superannuation fund.
What does ‘partial segregation’ mean?
Partial segregation means that the superannuation fund’s assets are separated into:
- Pension assets.
- A mixture of pension and non-pension assets.
Is an Actuarial Certificate required for a ‘partial segregation’ superannuation fund?
Yes. As there is still a mixture of pension and non-pension assets in the fund, the tax-exempt percentage of these assets will be required.
Who requires an Actuarial Certificate?
An Actuarial Certificate service is required by whoever is preparing the tax return for the superannuation fund.
How and when is the Actuarial Certificate used?
The information in your Actuarial Certificate will be used by whoever is preparing your superannuation fund’s tax return to lessen the fund’s annual tax.
How do I obtain an Actuarial Certificate?
The first step is to find an actuary who specialises in providing Actuarial Certificates. There are a lot of actuarial firms in the marketplace, however many focus on other actuarial services. It is a good idea to always check the actuarial firm’s website first to ensure they specialise in providing Actuarial Certificates for superannuation funds.
What will my actuary need from me to complete an Actuarial Certificate?
Each actuarial firm works differently, and as such, will have its own requirements. If you have an external administrator, such as your accountant, they will obtain the certificate on your behalf. If you administer your own fund, G P Osborn has an easy online process to get things started.
What does it cost to get an Actuarial Certificate?
Depending on the format in which the information is provided to the actuary, the cost ranges from $110 to $165, including GST.
How long does it take to produce an Actuarial Certificate?
In most cases, once the relevant information has been received, your actuary can produce an Actuarial Certificate in less than 24 hours.
Do I need an Actuarial Certificate for a Trust?
An Actuarial Certificate is only required if the Trust is a superannuation fund.
What is a ‘transition to retirement phase’ pension?
It is a pension that commences before the actual ‘retirement phase’. This phase gives you the opportunity to access your super while you are still working. To be eligible for the ‘transition to retirement phase’, you must have reached your ‘preservation age’. This will between the ages of 55 and 60, depending on your date of birth.
Is an Actuarial Certificate required for a ‘transition to retirement’ pension?
Yes and no. An Actuarial Certificate is only required once a person has entered the ‘retirement phase’, not before. This can be confusing, as after this point the pension continues to be referred to as a ‘transition to retirement phase’ pension.
Is an Actuarial Certificate required for an ‘account based’ pension?
Is an Actuarial Certificate required if a person is over 60?
This will depend on a couple of factors:
- If a person is between 60 and 65 years of age and has not retired, then they will not need an Actuarial Certificate.
- If they are between 60 and 65 years of age and are permanently retired, they will need an Actuarial Certificate. However, they must notify the Trustee of their superannuation firm that they have retired permanently.
- If they are over 65 years old, they will require an Actuarial Certificate. This is because whether they are retired or not, all of the superannuation income supporting the pension is tax-free.
What do you do if you need an Actuarial Certificate?
Our team has a wealth of experience in providing Actuarial Certificates for those Self-Managed Super Funds that have both pension and accumulation accounts. We take pride in our ability to making the process or acquiring an Actuarial Certificate easy and headache free.
Should I choose an actuarial certificate through BGL 360?
The main advantages of choosing to get your Actuarial Certificate via BGL 360 is that doing so is quick, easy and accurate.
Can I get an actuarial certificate through BGL 360 online?
What is the history of actuarial certificates?
Traditionally superannuation funds (or, pension funds, as they are known in practically every other country) have required regular actuarial assessment to determine their financial solvency. In, I think,1987 a unique to Australia concept, self-managed superannuation funds were started, At about the same time an actuarial entrepreneur (if there is such a term) David Smith came up with the idea the pensions and annuities did not have to have a fixed amount of repayment. He sold “variable annuities”, to take advantages of the tax free status of pensions and annuities. The tax office said these were not annuities but after much legal wrangling, his concept was accepted so allocated pensions were developed. So, we have self-managed superannuation funds offering allocated pensions but because they were superannuation funds, an actuarial certificate was required every three years to say they were solvent. But, because the amount of pension was variable, solvency was never an issue! I issued my first actuarial certificate in 1997. These certificates simply said the fund is solvent.
I think it was 2004 when the superannuation funds started to be taxed. However, only the accumulation part was taxed. Once pensions began, the amounts required to support the pension were tax free. Actuarial certificates now had to state the proportion of fund income that was tax free. So, in answer to your question, I think it was 2004 when actuarial certificates, in their current form, were first required.
How often is an Actuarial Certificate required to be updated?
An Actuarial Certificate is typically required to be updated annually, as the financial situation and membership of the fund can change over time.
What are the regulatory requirements for Actuarial Certificates?
Actuarial Certificates are required to be prepared in accordance with Section 295-390 of the Income Tax Assessment Act 1997.
What are the consequences of not having an Actuarial Certificate?
Not having an Actuarial Certificate means the fund is unable to claim the tax benefits associated with pensions.
What are the common mistakes that people make when obtaining an Actuarial Certificate?
Common mistakes include not providing all necessary information to the actuary and not updating the Actuarial Certificate annually.
What are the different types of Actuarial Certificates?
There are two different types of Actuarial Certificates. Usually, the Actuarial Certificate required is the one specifying the exempt income percentage only. However in the case of defined benefit funds additional information is required regarding the solvency of the fund.
What are the common misconceptions about Actuarial Certificates?
One common misconception is that an Actuarial Certificate is only required when there are pension payments when in fact it is only required when the fund is unsegregated and tax-free income is being claimed. Another misconception is that the Actuarial Certificate is only used for regulatory compliance, when in fact it can also be used for strategic planning and decision-making within the fund.
How can I ensure the accuracy of my Actuarial Certificate?
Ensuring the accuracy of an Actuarial Certificate can be done by providing complete and accurate information to the actuary and providing advice to the actuary if the financial situation of the fund changes.
What is the benefit of having an Actuarial Certificate?
The benefit of having an Actuarial Certificate is that in the case of an unsegregated fund, the fund can claim tax exemption on its pension income.
How can I check the validity of an Actuarial Certificate?
The validity of an Actuarial Certificate can be confirmed by checking that it has been prepared by a qualified actuary, and that it is current and has been prepared in accordance with the relevant regulations and standards.
How can I prepare my superannuation fund for an Actuarial Certificate?
Preparing a superannuation fund for an Actuarial Certificate will involve gathering all necessary information, such as financial statements, membership data, and benefit details, and ensuring that the fund is in compliance with any relevant regulations.
What are the responsibilities of an actuary in preparing an Actuarial Certificate for an SMSF?
The responsibilities of an actuary in preparing an Actuarial Certificate for an SMSF includes assessing the data provided for consistency and reasonableness and ensuring the calculations comply with all current regulations. The actuary must also meet the professional and ethical standards of his/her professional body and should update her/his knowledge and skills accordingly.