Employer sponsors of defined benefit (DB) funds would wear substantial additional costs due to Federal Government's decision to calculate DB contributions for high income earners using the ‘surchargeable' contributions methodology, as opposed to notional taxed contributions (NTC) calculations, according to The Actuaries Institute.
In a submission to Treasury it said it was disappointed its recommendations in a May submission were largely ignored — despite the strong reasoning given behind its preferred methodology.
The Government's requirement for individual surcharge rates would further increase the cost and complexity involved with the methodology proposed, the Actuaries Institute said.
The industry body said that assuming average actuarial costs of $20,000 for approximately 500 private sector DB funds and sub-funds, actuarial implementation costs could be around $10 million with further associated administration and communications costs.
Although ongoing actuarial costs could drop to $10,000 per year, the Actuaries Institute said the imposition of compliance costs was a huge burden — considering only a small number of DB members in each fund, and none in some, would be subject to the higher tax.
Additionally, implementation could stretch on to mid-next year, according to the Actuaries Institute.
The small number of DB members it estimated would be affected — potentially less than 2000 — and access to NTC factors already available, made it reluctant to bear the complex and expensive surcharge factors for every one of the taxed DB funds.