The long-awaited Retirement Income Covenant will become a reality after the parliament passed a bill requiring superannuation trustees to create retirement income strategies that spell out how they can assist super fund members in retirement.
The covenant was included within the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021, which passed through parliament on 10 February after having been first suggested as part of the 2018 budget and then having its introduction deferred in 2020.
Under initial proposals, all superannuation funds, including SMSFs, would have been required to create strategies for members, but draft legislation released in September 2021 indicated the government had removed that requirement for the SMSF sector only.
Superannuation, Financial Services and the Digital Economy Minister Jane Hume said: “Current legal obligations of superannuation trustees have focused primarily on the accumulation phase and there are no obligations to consider the needs of beneficiaries in retirement. The retirement income covenant will address this gap.
“A trustee’s retirement income strategy must consider how they will assist their members to balance maximising their retirement income, managing risks to income and having some flexible access to savings.
“It will give retirees the confidence to spend their superannuation savings, while enabling choice and competition in the retirement phase of superannuation.”
Under the covenant, superannuation trustees will be required to have their strategy formulated in writing and a summary version available to the public from 1 July 2022.
Hume said the strategies are expected to evolve and develop over time, and given the time frames involved in the introduction of the covenant, superannuation funds should be able to publish their retirement income strategies by 1 July 2022.
The passing of the legislation was welcomed by FPA chief executive Sarah Abood, who said it was an important improvement on current legal obligations for super funds.
“On behalf of its members, the FPA has been long calling for new retirement income products to be developed for Australian retirees which allow them to select the best options to suit their unique retirement needs.
“The ‘one-size-fits-all’ approach in the system has limited the ability for retirees to mix income, lump sum, longevity and market risks adequately. Given these changes, financial planners now look forward to their clients having the ability to access a broader range of options.”
