This article will look at how to do the following in Simple Fund 360:
- Record a market linked pension
- Enter pension payments for a market linked pension
Determining the original term
Important
Simple Fund 360 will automatically calculate the Original Term, however, users have the ability to overwrite the original term when the pension is processed in Simple Fund 360.
To determine the original term, follow the steps below:
- Determine the age of the pension member at the Pension start date.
- Using the following tables published by the Australian Government Actuary, determine the additional life expectancy for the member:
4.9.5 Life Expectancy, Pension Valuation Factor & Payment Factor Tables - Round up the life expectancy amount (at step 2) to the nearest number
The member's age is determined at either:
- 1 July if there is an existing pension, or
- the Commencement Day of the pension (if the pension starts in the current financial year).
Example John Jones, a member of the fund, commences a non-reversionary pension on 1 July 2014. John Jones is 65 years old as of 1 July 2014. The original term will be calculated as follows: 1. John Jones is 65 years old 2. Refer to the Life Expectancy Table published by the Australian Government Actuary. 3. John's total life expectancy would be: |
Other suitable original terms
The above example has shown you how to determine the original term for a given individual using their age and gender.
When creating a market-linked pension, other suitable original terms can be recorded in Simple Fund 360. The original term you choose will depend on the annual entitlement payment amount and duration required for the member.
The other original terms available are:
- Minimum Term: Life Expectancy of the pension member
- Maximum Term: Equal to the period from the commencement day until the member reaches age 100, or life expectancy based on an age five years younger than the current age, whichever is greater.
If a market-linked pension is set up so to revert to a surviving spouse on the death of the primary pensioner and the life expectancy of the spouse is greater than that of the primary pensioner, then the member can also select a term that is within the reversionary pensioner’s minimum and maximum term.
If the market-linked Pension account has a reversionary beneficiary, by selecting the member's account in the member list.
Then manually add the different Original Term in the related table under Account Details Once completed select Save
Creating the account
From the Main Toolbar, go to Member. |
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Select Member list. |
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From the Member List screen click New Member Account and select New Pension Member
Record the start date.
Ensure that the correct start date is entered as this can be difficult to change later.
Set the Pension Account Type as Market Linked Pension
Ensure the appropriate accumulation account is selected
Original Term Users can Leave blank the original term field and Simple Fund 360 will automatically calculate the Original Term for the member.
If an amount is entered here, Simple Fund 360 will then use this term for its pension calculation.
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Ensure the correct Rollover Components and Preservation Amounts are entered.
Click Save.
Recording the pension payments
Simple Fund 360 will automatically calculate the Minimum and Maximum annual pension amounts using the original term entered when setting up the market-linked pension account.
These amounts can be viewed by navigating to the Pension Dashboard screen
From the Main Toolbar, go to Member. | |
Select Pension Dashboard from the list. |
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To pay a pension amount of $25,000 to Bill, the following journal would be recorded:
Account
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Code
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Debit ($)
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Credit ($)
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---|---|---|---|
Pensions Paid | 41600/Bill | 25,000 | |
Bank | 60400/BankCode | 25,000 |
Calculation of the minimum pension payment
The minimum annual payment amount is worked out by dividing the member’s pension account balance by the relevant pension factor stipulated in the SIS Regulations, rounded to the nearest 10 dollars.
The payment factors for Market Linked Pensions will be based on the remaining pension term in whole years.
- If the pension originally commenced in June, the remaining term will be rounded up on the 1st of July. But, the term will be rounded down if the pension commences between July and December.
Example: Bill has a market-linked pension with an opening balance at 1 July 2012 of $500,000. His market-linked pension commenced on 1 July 2008 with an original term of 42 years. Bill has a remaining term of 38 years (42 less 4 years that have lapsed between 1 July 2008 and 1 July 2012). As such, his pension factor is 20.84 as per the table linked. Bill's calculated pension amount is $23,992 (ie. $500,000 divided by 20.84), and his minimum and maximum allowable pensions as sown below (amounts are rounded to the nearest $10): Minimum: $23,992 x 0.9 = $21,590 Maximum: $23,992 x 1.1 = $26,390 |
Account balance is either:
- the pension account balance on 1 July for an existing pension
- the balance of the pension on the commencement day (if the pension starts in the current financial year), or
- the amount of the withdrawal benefit, if the amount of the pension account balance is less than the withdrawal benefit that the member would be entitled to if the pension were to be fully commuted.
1. Minimum Pension Payments for Market-Linked Pensions commenced after 1 July for the first year
The minimum payment amount for the first year is calculated proportionately to the number of days remaining in the financial year, starting from the commencement day.
To calculate this, multiply the minimum pension payment amount by the remaining number of days in the financial year and divide by 365 (or 366 in a leap year).
Minimum annual payment amount × (remaining number of days ÷ 365 (or 366)).
2. Minimum Pension Payments for Market-Linked Pensions commenced on or after 1 June in a financial year
No minimum payment is required to be made for that financial year.
3. Minimum Pension Payments for Market-Linked Pensions commenced after 20 September 2007
Introduced by the Simplified Superannuation reforms in 2007 was that market linked pensions commenced after 20 September 2007 must also satisfy the minimum pension standards for account-based pensions in addition to the market linked income payment rules.
Simply, this means that the Minimum amount calculated for the Market Linked Pension is compared with the Minimum amount calculated for the pension using the Account-Based Pension rules. The pension account will then use the greater amount of the two as its minimum annual payment amount.
For more information, check out ATO: Minimum Pension Payments.