Retirement, Superannuation

Retirement income covenant captures SMSFs

retirement income superannuation

The retirement income covenant will apply to all superannuation funds, including SMSFs, and will carry similar obligations to those required for investment strategies.

The retirement income covenant proposed by the federal government will require all superannuation funds, including SMSFs, to have a documented strategy to identify the retirement income needs of fund members and provide a plan to service those needs.

A position paper on the covenant has been released by Superannuation, Financial Services and the Digital Economy Minister Jane Hume, who said: “The introduction of the retirement income covenant is an important step in encouraging the further development of the retirement phase of superannuation.

“The covenant will codify the requirements and obligations for superannuation trustees to improve retirement outcomes for individuals, while enabling choice and competition in the retirement phase.”

Hume said the covenant would also address a key finding of the Retirement Income Review, which claimed it was possible to increase the standard of living of retirees by improving their use of superannuation assets in retirement.

The proposal paper noted an existing covenant in the Superannuation Industry (Supervision) Act 1993 includes obligations to formulate, review regularly and give effect to an investment strategy, and the paper uses similar language as that covenant to describe the new proposed arrangement.

“Trustees are required to formulate, review regularly, and give effect to a retirement income strategy for the retired members of their fund, and the members of their fund approaching retirement. The strategy can be formulated for all members in generality, or cohorts of members in generality, as identified by the trustee,” the paper stated.

It added the strategy should outline how the fund will assist members to maximise their retirement income, including taking into account the age pension and other social security benefits, manage risks to the sustainability and stability of the member’s income and provide them with flexible access to savings during retirement. The strategy should also be reviewed at least annually.

According to the paper, the formulation of a retirement income strategy would not be considered as providing financial advice to members.

“The retirement income strategy expresses the broad actions the trustee will take to assist their members to balance key retirement income objectives,” it said.

“It does not consider the specific circumstances of individual members.

“However, any assistance provided by the trustee to give effect to their retirement income strategy needs to comply with existing financial advice rules.”

The paper is open for consultation until 6 August and further consultation on exposure draft legislation will take place later this year.

Subject to the passage of legislation, the covenant will commence from 1 July 2022.


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