A fund may need an actuarial certificate to claim ECPI in the fund's annual return. The actuarial certificate is used to calculate the amount of ECPI which can be claimed.
Funds using the proportionate method will need an actuarial certificate for each year they claim ECPI, regardless of the type of retirement-phase income stream being paid.
For the 2017–18 to 2020–21 income years, funds must use the proportionate method if they have disregarded small fund assets, (even if the fund is in 100% in retirement phase) and obtain an actuarial certificate that certifies the proportion of exempt income.
A fund using the segregated method won't need an actuarial certificate to claim ECPI if at all times during the income year the only retirement-phase income streams paid were:
- allocated pensions
- market-linked pensions
- account-based pensions.
This applies even where one of the income streams is begun part way through an income year. It also applies if the fund hasn't previously claimed ECPI under the proportionate method or the segregated method.
A fund using the segregated method will need an actuarial certificate to claim ECPI if it paid any retirement-phase income streams other than those above. Generally, these are older style income streams started before 20 September 2007. The fund will need to obtain an actuarial certificate covering all the retirement-phase income streams it pays.
For any period or periods of an income year a fund isn't 100% in retirement phase, and the fund's assets aren't actively segregated, the proportionate method must be used. The fund will need an actuarial certificate for that income year.
An actuary will calculate the exempt proportion for the period or periods of the income year that the fund's assets weren't segregated. The exempt proportion the actuary calculates can be applied to the income earned by the fund during this period or periods to make up part of the fund's total ECPI for the income year.
Only one actuarial certificate is required for the period or periods the proportionate method is used, even if a fund changes methods multiple times in an income year. An actuarial certificate isn't required for the period or periods of the income year the segregated method is used.
Our compliance approach for the 2016–17 and prior income years
We understand there have been instances where an approach or practice not consistent with our position may have been applied by some funds to calculate ECPI.
In some cases a fund that's 100% in retirement phase for part of an income year may have obtained an actuarial certificate using the proportionate method for the entire year, with the exempt proportion calculated by the actuary applied to a fund's income for the full income year.
Considering the low risk this issue presents regarding prior income years, we don't intend to specifically review ECPI calculations in the 2016–17 income year (and prior) which were made using the proportionate method for the entire income year, despite the fund being 100% in retirement phase for part of the year.
This compliance approach doesn't affect our position regarding the operation of the law: that fund assets in these instances are segregated for part of an income year. We will maintain this position if formally requested through the relevant advice and guidance channels we provide even if advice or guidance relates to the 2016–17 income year and prior.
For the purposes of claiming CGT relief, a fund will still be considered to have switched from the segregated method to the proportionate method where the fund ceased being 100% in retirement phase and the fund didn't actively use the segregated method.
From the 2017–18 income year, we expect funds to calculate ECPI and obtain actuarial certificates in line with our position. That is, where a fund uses the proportionate method for part of an income year an actuarial certificate is required to claim ECPI for that period.
SAFs should now return to the Fund Income Tax Return Instructions to complete the labels in the Fund Income Tax Return.