Regulation, Retirement

Carve-out a missed opportunity

retirement income carve-out

A chance to address retirement issues extending beyond investment themes may have been missed by excluding SMSFs from the retirement income covenant.

The federal government’s decision to carve-out SMSFs from the retirement income covenant legislation has the potential to be a missed opportunity to strengthen the method by which the sector services retirees, a technical specialist has said.

Smarter SMSF chief executive Aaron Dunn cited the policy objectives of the exposure draft of the Treasury Laws Amendment (Measures for a Later Sitting) Bill 2021: Retirement Income Covenant as evidence this might be the case.

“It’s all about helping trustees with retirement. Now we’ve got a very large cohort of members inside SMSFs [who] are drawing income streams from their SMSFs. So we’re a far more mature pension market than APRA (Australian Prudential Regulation Authority)-regulated funds,” Dunn told delegates at the ASF Audits Technical Seminar 2021 held last week.

“Clients will continue to need retirement planning advice [in] helping them better understand [how to fund their retirement].”

In particular, he recognised SMSF trustees will still need help with determining a reasonable level of income to support sensible expenditure in retirement to avoid leaving a larger than necessary death benefit upon their passing as appears to be happening currently.

He pointed out cognitive decline and the subsequent need to formulate a strategy to manage it is another area with which trustees need assistance that could have been addressed by the retirement income covenant, and suggested there may have been a better option to excluding SMSFs from the draft legislation.

“I think there is a better argument to try and combine something that brings together the investment risk and management requirements with some of the [issues] I’ve spoken about here to put together something and move aside from an investment strategy,” he said.

According to Dunn, the carve-out for SMSFs from the retirement income covenant is an indication the government is satisfied with the level of engagement trustees in the sector are having on their retirement savings.

Treasury last month confirmed the retirement income covenant will not apply to SMSFs.

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