FAQs

[1.1] High probability not applicable – Still sufficient – Social Security consequences…What are the Social Security consequences of the actuary not being able to certify a high probability of sufficiency but still being able to certify sufficiency?

Action to ensure a high probability is necessary. This normally takes the form of a reduction in pension. This is normally achieved by commutation of the initial pension and establishment of a new pension. This process has consequences under the deprivation provisions of the legislation. The difference between the “high probability” cost of the pension and its Social Security valuation is deemed to have been a gift for these provisions.

[1.2] Insufficiency – Social Security consequences…What are the Social Security consequences of the actuary not being able to certify sufficiency of a fund?

[1.3] Insufficiency – Tax consequences…What are the tax consequences of the actuary not being able to certify sufficiency of a fund?

Action to restore sufficiency is necessary. The actuary is obliged to issue a Section 130 notice querying the trustee as to how it plans to restore sufficiency and to report failures to restore sufficiency to the ATO. Sufficiency may be restored by either suspension of indexation or a reduction in pension. A pension reduction is normally effected by commutation of the initial pension and establishment of a new pension.

[1.4] High probability of sufficiency at pension start – Who needs it…Is it necessary to have a high probability of sufficiency at the start of a pension?

Only if the pensioner is relying on the pension for Social Security assets test exemption purposes. If there is no Social Security consideration, the law merely requires actuarial opinion as to whether there is a high probability of sufficiency not a high probability per se. Many pensioners prefer to have a high probability to enhance the security of their pension, reduce the risk of needing to adjust their pension if the fund becomes insufficient or to minimise their taxable income, but they do not have to.

[1.5] High probability not applicable – Still sufficient – Tax consequences…What are the tax consequences of the actuary not being able to certify a high probability of sufficiency but still being able to certify sufficiency?

There are none, as long as the fund is sufficient to meet its liabilities, the fund is solvent and the ATO has no issues with it.

[2.1] High probability not applicable – Still sufficient – Social Security consequences…What are the Social Security consequences of the actuary not being able to certify a high probability of sufficiency but still being able to certify sufficiency?

[2.2] Insufficiency – Social Security consequences…What are the Social Security consequences of the actuary not being able to certify sufficiency of a fund?

[2.3] Insufficiency – Tax consequences…What are the tax consequences of the actuary not being able to certify sufficiency of a fund?

[2.4] High probability of sufficiency at pension start – Who needs it…Is it necessary to have a high probability of sufficiency at the start of a pension?

[2.5] High probability not applicable – Still sufficient – Tax consequences…What are the tax consequences of the actuary not being able to certify a high probability of sufficiency but still being able to certify sufficiency?