Life Tenant Factors – Australian Life Tables 2015-17

Life Tenant Factors – Australian Life Tables 2015-17

Life tenant factors released by RevenueSA under ruling SDA011 of the Stamp Duties Act 1923 have been updated here for Australian Life Tables 2015-17. The discount rate used is 5% per annum which is consistent with the original ruling and allows for comparison. It is noted that these factors have since increased from Australia Life Tables 2010-12 for all ages and materially as age increases.


For queries on the use and appropriateness of these factors for a stated purpose, please feel free to contact us directly.  Not withstanding, these factors come with no warranties whatsoever without our prior express written permission.

Retirement Income Targets for All Ages

Retirement Income Targets for All Ages

How much superannuation is enough? For individuals considering a lifetime pension, the correct value is a function of both age and gender. Our actuaries have recently calibrated a complete table of targets required to produce a retirement income of $65,000 p.a.

For example, a retirement income of $65,000 p.a. (indexed) for a 70 year old female is valued at:
$787,430 (on average)

A complete table of targets for all ages is reproduced below:

There are a range of alternate targets applicable depending on other factors such as guaranteed periods, reversionary elements or personal health circumstances. These can be sourced via our online calculator here.

Retirement Income Target - Calculator
Superannuation – Is Cash Accounting Fit for Purpose?

Superannuation – Is Cash Accounting Fit for Purpose?

How do your annual SMSF accounts compare? The financial statements for most SMSFs are prepared on a cash basis with no consideration for the retirement obligations of the fund’s members. This is less than helpful when say:

  • you have less than $200,000 and are mid-career, or
  • you are a couple approaching retirement with a combined balance of $500,000 or
  • you are a young adult with no savings or are having a career break, or
  • you have entered retirement phase with assets of around $650,000

An alternative to cash accounting would include some recognition of the retirement obligations of each SMSF by having each member formally set their retirement objectives and adding a note to the accounts with an estimate of their accrued benefits as a discretionary liability. This would create a greater alignment of the fund’s objectives and its members with the Australian Superannuation system.

The benefits of this additional disclosure would include the following:

  • It would clearly indicate whether the fund is on target towards meeting its members’ retirement objectives over time.
  • There would be a greater incentive for all individuals to engage with their retirement objectives and savings.
  • It could be referred to by financial planners as a guide for providing further advice to members and trustees.
  • Any changes to the retirement objectives of the members could be explicitly measured and reported to both members and Government.
  • It would be cost neutral to Government and potentially offer savings in the longer term with a greater emphasis on long-term investment strategies.
  • The fund’s investment returns could be benchmarked annually against the assumptions used to determine the value of accrued benefits.

The steps to implementing this would be relatively straightforward as the principle of valuing accrued benefits is well established internationally within both accounting and actuarial standards for private superannuation and pension funds.

Also by including these values in the notes to the accounts as a discretionary liability, they would remain off the balance sheet and yet would provide added guidance to trustees and members alike.

For an immediate assessment of your accrued benefits, please try our online calculator below:

Valuation of Accrued Benefits - Calculator

Alternatively, you can download our submission to Treasury’s, “Review of Retirement Incomes in 2020,” – here.

 

Improvements in Australian Life Expectancy Slows

Improvements in Australian Life Expectancy Slows

The Australian Government Actuary (AGA) has released its latest life tables based on 2016 census data and noted the improving life expectancy has slowed since 2011. In its estimates of life expectancy, the AGA adopts improvements based on both the 25- and 125-year trends to estimate the latest life expectancies.

Previously, the shorter 25-year trend showed a greater rate of improvement than the longer 125-year trend. However in its latest estimates, the 25-trend has not been borne out in the latest census at 2016.

Source: Australian Government Actuary - Life Tables 2015-17 Figure 11

This is primarily  due to the mortality rates for those aged between 32 and 62 not being as consistently favourable with the expected trends:

As a result, the AGA has dropped the more favourable 25-year trend from its 2016 cohort estimates. Thus the life expectations for different cohorts of Australians using the 125-year trend only are now as follows:

Year of Birth

2016

2020

2030

2040

2050

2060

 

Males

87.1

87.5

88.4

89.2

89.9

90.5

Females

90.5

90.9

91.6

92.2

92.8

93.3

Source: AGA Australian Life Tables 2015-17, p20

 

The effects of improving mortality are clearly demonstrated in the AGA’s estimates of life expectancy – both with and without these improvements – as follows:

Source: Australian Government Actuary - Life Tables 2015-17 Figure 12

In summary, the overall pattern is one of continued improvement over time which means we are all living longer with implications for aged care needs, retirement policies and aged pension costs.

Actuarial Certificates via BGL SimpleFund360

Actuarial Certificates via BGL SimpleFund360

We are pleased to announce the launch of our actuarial certificate service to superannuation trustees, auditors and accountants via the BGL platform. Through the use of API technology, all account balances and transactions are compiled in real time and presented as charts instantly. No data entry and no waiting.

All our certificates are reviewed by our inhouse actuary and all users can review their fund balances across the current tax year in real time as follows:

Then the results are presented immediately as a daily percentage chart allocated between taxed and untaxed balances together with the overall Tax Exempt Percentage for the year. A sample is as follows:

More information can be found about us on BGL’s help page here.

We hope that you like our approach to providing timely and relevant actuarial certificates.

If you would like to take advantage of this service, please defer to BGL and their SimpleFund360 platform.

Old Age Pension Liabilities Valued at $516 billion

Old Age Pension Liabilities Valued at $516 billion

An exercise in data matching by our actuaries has placed a value on the Australian Government’s Income Support for Seniors at an average of $203,600 per pensioner. Given that the total number of eligible pensioners is just over 2.5 million at June 2019, that is a total value of $516 billion of liabilities funded by the Australian Commonwealth Government.


It was also noted that these benefits fall back to the Commonwealth Government to finance from ongoing consolidated revenue. Given an aging population and declining taxation base, this means there are some issues of equity between generations…….Ideally, there would be an equivalent to the Future Fund to safeguard and protect the rights of pensioners from the pressures of future budgets ……….of around $586 billion.

Continue reading “Old Age Pension Liabilities Valued at $516 billion”

2019 Budget Changes to Actuarial Certificates

2019 Budget Changes to Actuarial Certificates

The 2019 budget announced that from 1 July 2020 superannuation funds will be able to choose which method provides them with the best tax free ECPI%.

Superannuation trustees should use the opportunity to double check their annual ECPI% against there existing advisor’s. Our particular method coincides with “whole-of-year unsegregated assets” and may be worth comparing against other methods.

In fact, why wait and double check your fund for this year!

 

Actuarial Certificate - Online Form

When is $1,600,000 enough? Lifetime Annuity calculator.

When is $1,600,000 enough? Lifetime Annuity calculator.

Are you ready to retire? How long will the Government’s new $1,600,000 limit on concessional superannuation last you? And how much income will this generate if you retired today?

The answer is, “for the rest of your life!” when it is a lifetime annuity. Our actuaries have calibrated the value of $1.6M to be equivalent to an income stream of:

$93,665 p.a. for a 65 year old male or

$82,970 for a female (when indexed to the CPI).

How much superannuation do you have and how much income would you have if this were converted into a lifetime annuity today?

For all these answers, please visit our no obligation, online Superannuation annuity calculator at:

Superannuation Annuity Calculator

ATO clarifies the use of actuarial certificates for SMSF’s

ATO clarifies the use of actuarial certificates for SMSF’s

The ATO has updated its guidance around exempt income for SMSFs and when segregated assets apply. It simplifies the current approach for funds that are in 100% pension phase for part of the year by allowing for assets to be classified as “segregated” for that portion of the year coinciding with pension payments.

But the ATO also stressed that actuarial certificates must still be obtained when unsegregated assets apply or even in certain circumstances when segregated assets applies.

There is some leeway given to trustees who had not applied the ATO’s latest clarification to income years 2016/17 and prior. Full details can be found on the ATO’s updated website here.

Our easy online form can also be used to assess whether your fund requires an actuarial certificate this year.

Actuarial Certificate - Online Form