The SMSF Association has welcomed the federal government’s proposed retirement income covenant for superannuation trustees, but has called for a measured approach to the implementation of the initiative.
The industry body’s submission to Treasury on the issue encouraged Canberra to ensure any measures introduced are practical, do not increase costs or create an additional administrative burden and are fit for purpose.
Specifically the association has asked the government to acknowledge the different structural characteristics of Australian Prudential Regulation Authority-regulated funds and SMSFs and asked it to give careful consideration as to how the resulting legislation will apply to these distinct environments.
Further, it has suggested the introduction of the retirement income covenant should reflect the experience gained from the operation and function of the investment covenant.
“For SMSF trustees there does appear to be an element of overlap between the proposed retirement income covenant and the investment strategy covenant on investment composition and risk, and having to address some of these concepts separately may cause confusion or duplication,” association chief executive John Maroney said.
“We appreciate the policy intent, but are of the view that including, for example, the longevity and risk consideration alongside a robust investment strategy could accomplish this objective.”
Maroney also raised concerns as to the implications of the covenant on the annual SMSF audit.
“We would be concerned if this new covenant results in auditors having to extend the scope of their audit to matters that they would not ordinarily be expected to consider,” he noted.
“Broadening the scope of an SMSF audit will increase the complexity of the audit process along with the time and cost incurred.”
Although the industry body highlighted these worrying issues for SMSFs, it recognised the retirement income covenant also presented some retirement planning opportunities for the sector.
“Matters that could form part of the SMSF trustee’s compliance with the retirement income covenant include the trustee’s plan for loss of capacity and documenting whether valid enduring powers of attorney are in place,” Maroney said.
“We think encouraging this type of conversation would be of greater value to SMSF trustees and would promote active engagement, trustee and member education, and considered retirement planning.”
The retirement income covenant has already drawn criticism about its relevance for SMSFs from other sector stakeholders.
