Reviewing actuarial certificates for lifetime or life expectancy asset test exempt income streams from Self Managed or Small APRA Super Funds 110-02060050

Actuarial certificates are not required for any of the following:

• for account-based (including market-linked) income streams paid from a SMSF or a SAF
• for any other asset-tested income streams paid from a SMSF or a SAF
• for any income streams that are purchased from the market on a commercial basis or acquired from large company superannuation funds or public sector superannuation funds

If a lifetime or life expectancy ATE income stream is paid from a SMSF or SAF, the customer (or trustee) must provide Services Australia with an actuarial certificate that indicates whether, for the financial year in which the certificate is given, there is a high probability that the fund can meet the income stream payments as specified under the fund's trust deed or governing rules.

Actuarial certificates must be prepared in accordance with Institute of Actuaries (IAA) Professional Standard 410 (PS410) or Guidance Note (GN) 465 (for valuations based on financial years up and including 2017-18). If an actuarial certificate refers to professional standard other than PS410 or guidance note GN465, the certificate should state that it is a PS410 or GN465 that specifies requirement for high probability.
Note: for valuations on or after 1 January 2018, Guide Note 465 - Statement of Opinion has been replaced by Professional Standard 410 (PS410) of the IAA. For the 2017-18 financial year, PS410 or GN465 can be used to form the assessment of high probability.

The certificate must:

• Specify an 'in force' period of 1 July to 30 June of the financial year in which the certification occurs
• Be certified between 1 July and 31 December of the current financial year
• Be provided to Services Australia by 21 January of the current financial year.
  Note: an additional three weeks from 31 December is given only for the provision of the certificate to take into account any delays during the Christmas period. The certification date cannot be after 31 December
• Be based on the characteristics of the income stream to which it relates

Customers with lifetime or life expectancy ATE income streams from SMSFs or SAFs can only provide one actuarial certificate for each financial year. If more than one certificate is provided for a particular financial year, only the first certificate given will have effect, not any of the subsequent certificates.

A single actuarial certificate may be accepted if there are multiple ATE lifetime or life expectancy income streams paid from a SMSF or SAF, however, the actuarial certificate should state high probability opinion for each income stream.

This is supported by Guide to Social Security Law 4.9.4.40, which states the certificate must provide a separate statement for each income stream to clearly differentiate between them. See the References page for further information. Separate statements mean separate high probability opinions for each income stream. However, in such cases, there is no 'one' particular set format in which a high probability opinion can be given for each individual income stream.

Subsections 9A(1C) and 9B(1C) of the Social Security Act 1991 clarify that the grace period in which a person must provide a new actuarial certificate for the income stream applies from the beginning of the particular financial year, that is, from 1 July and ends at the earlier of the following:

• when a new actuarial certificate is provided in relation to that income stream for that financial year
• 31 December of that financial year

An additional three weeks grace period from 31 December is given for the provision of the certificate to take into account any delays during the Christmas period. The certification date cannot be after 31 December.

The product retains its ATE status until a new actuarial certificate is provided within the grace period if it continues to meet the requirements for ATE in section 9A(2) or section 9B(2) of the Social Security Act 1991.
Note: the addition of funds (for example, topping up the income stream) or use of funds from outside the income stream (for example, to meet administrative expenses) or reduction of income payments to meet the high probability requirements is not permissible.

Once a new actuarial certificate is provided, the grace period finishes irrespective of whether or not the certificate specifies a high probability opinion.

If the certification date of the new certificate is after 31 December or the certificate has been provided after 21 January, the income stream will permanently lose its asset-test exemption (ATE) from 1 January. The loss of ATE status does not mean that it is now a new income stream. It is still the same income stream that is reassessed as non-complying and therefore, asset-tested instead of asset-test exempt.

The original income stream should be cancelled from 1 January and re-coded as non-complying from the same date with the same purchase price, purchase date, relevant number, etc. as the original cancelled income stream. The system will then automatically deplete the purchase price resulting in the correct assessable asset value.

The customer should be formally notified about the decision to reassess the income stream as asset-tested from 1 January for non-provision of the actuarial certificate by 21 January or because the actuarial certificate provided has a certification date after 31 December.

Before 1 July 2012, the customer's entitlement was to be assessed as if the income stream had never been ATE which may have resulted in a debt being raised and recovered. This no longer applies from the 2012-13 financial year.

Actuarial certificate provided by 21 January and certification date before 1 January but does not specify 'high probability' opinion - restructure period of up to 12 weeks.

Under the social security legislation, if a valid actuarial certificate does not specify a high probability opinion, the income stream will lose its asset-test exemption (ATE) status from the date of provision of the new certificate to Services Australia.

Exception: Department of Social Services (DSS) will allow a restructure period of up to 12 weeks from the date the new certificate was provided to Services Australia. This is only if the customer intends to fully commute and rollover the original income stream, (entire amount including reserves), to an ATE lifetime, or life expectancy income stream from a retail provider and retain ATE status while the transfer is being arranged. These changes must happen within the restructure period.

The 12 week period can be extended to 18 weeks if:

• the customer has taken all steps to restructure their original ATE income stream within 12 weeks, and
• for reasons outside their control, the new income stream has not commenced within the 12 weeks

Note: only certain types of income streams can be purchased if the new income stream is to retain asset-test exemption.

The income stream will permanently lose its ATE status where:

• no action is taken, or
• the new ATE lifetime or life expectancy income stream is not purchased, or the original ATE income stream not commuted or transferred to an asset-tested market linked income stream (MLI):
• within the 12 week period, or
• within the 18 week period if an extension has been granted

If the ATE status is lost, the income stream must be manually reassessed as non-complying and asset-tested from the date the actuarial certificate was provided to Services Australia. Any debt resulting from the reassessment of the income stream as asset-tested has to be raised and recovered.

If ATE status is lost, and the, now asset tested income stream is commuted and rolled over to a lifetime, or life expectancy ATE income stream from a retail provider after the restructure period, the new income stream cannot be treated as an ATE income stream.
Note: the restructure period is 12 weeks but can be 18 weeks if an extension is granted.

This is because the new income stream will not meet the conditions for retaining asset-test exemption as the original income stream has already lost ATE status and is now an asset-tested income stream. The new income stream is treated as an asset-tested income stream (long term).

Until 1 January 2006, SMSFs and SAFs were able to offer any type of income stream, with allocated income streams being the most common type. However, from 1 January 2006, new lifetime or life expectancy asset-test exemption (ATE) income streams cannot be commenced from a SMSF or SAF.

Lifetime and life expectancy ATE income streams that were commenced before 1 January 2006 can continue to make payments but, if these income streams are commuted, the assets can only be used to purchase certain types of income streams in order to retain asset-test exemption, depending on the purchase date of the original income stream.
Note: the income stream must be fully commuted and the entire amount including the reserves used to purchase the new income stream for retaining asset-test exemption.

Original lifetime or life expectancy ATE income stream purchased before 20 September 2004 (100% asset-test exempt income stream)

The commuted assets can only be used to purchase a lifetime or life expectancy ATE income stream directly from a retail provider under the conditions for retaining asset-test exemption.
Note: the commuted assets cannot be used to purchase an ATE MLI. Alternatively, the commuted assets may be used to purchase a lifetime or life expectancy ATE annuity (from the statutory fund or benefit fund of a life office or friendly society) that is then used to source the income stream payments from the SMSF or SAF.

If the customer commutes a 100% ATE income stream and directly rolls over the proceeds to a MLI on or after 20 September 2007, the commutation is treated as a non-allowable commutation. The original income stream should be treated as if it had never been ATE and this would result in a debt being raised and recovered under section 1223A.

The MLI must also be assessed as an asset-tested income stream as the purchase date is on or after 20 September 2007.
Note: the debt waiver provisions are available from 25 August 2011. This relief is not the same as the temporary (old or enhanced) debt relief that was available in the 2009-2010 financial year. Under the debt waiver provisions, any debt raised as a result of the non-allowable commutation can be waived under section 1237AB of the Social Security Act 1991.

Original lifetime or life expectancy ATE income stream purchased on or after 20 September 2004 and before 1 January 2006 (50% ATE income stream).

The commuted assets may be used to purchase a MLI from the SMSF or SAF or an ATE lifetime or life expectancy or MLI directly from a retail provider under the conditions for retaining asset-test exemption.

Alternatively, the commuted assets may be used to purchase a lifetime or life expectancy ATE annuity (from the statutory fund or benefit fund of a life office or friendly society) that is then used to source the income stream payments from the SMSF or SAF.