The draft legislation regarding the implementation of a retirement income covenant has specifically stipulated SMSFs will not bound by the proposed measure.
The explanatory materials for the exposure draft of Treasury Laws Amendment (Measures for a Later Sitting) Bill 2021: Retirement Income Covenant confirmed the government’s stance in paragraph 1.3 under the section outlining Chapter 1 of the covenant.
The exposure draft states: “This covenant does not apply to trustees of self-managed superannuation funds.”
The SMSF Association welcomed the decision and was pleased Canberra appears to have taken notice of the reservations raised in its submission to Treasury’s Retirement Income Covenant Paper.
Concerns identified in this submission included a potential increase in red tape and higher costs for SMSFs should trustees be required by law to formulate a retirement income strategy, effectively for themselves.
However, the industry body pointed out SMSFs should not ignore the importance of planning to provide adequate retirement income solutions for members because of this legislative carve-out.
“Just because the law doesn’t require you to have a retirement income strategy, doesn’t mean you shouldn’t have one,” SMSF Association chief executive John Maroney said.
“It’s not a green light for SMSF trustees to ignore the spirit of a retirement income covenant as we know from bitter experience that failure to properly address these issues can derail even the best-laid retirement income plans.
“It is still important for SMSF trustees to ensure members are covered by a strategy that balances the objectives of maximising a member’s expected retirement income, managing the expected risks and providing flexibility to access capital required during retirement.”
Further, Maroney acknowledged the covenant can still play an important role for SMSFs even though they are not bound by it.
“The exposure draft legislation, by outlining the different matters and risks that APRA (Australian Prudential Regulation Authority)-regulated fund trustees should address in relation to maximising the expected retirement income of members, can act as a useful action plan or blueprint for SMSF trustees,” he noted.
Concerns had also been raised about the financial advice implications for SMSFs given the structure under which practitioners servicing the sector are currently operating.''