Financial Planning, Retirement

Covenant creates SMSF advice openings

retirement income covenant advisers

The Retirement Income Covenant could motivate more SMSFs to implement secure strategies and create opportunities for financial advisers.

While the Retirement Income Covenant will not have a direct impact on SMSFs, it could provide an important push for trustees and financial advisers to plan a comprehensive retirement strategy.

Speaking today in Adelaide at the SMSF Association National Conference 2022, Accurium technical services manager Melanie Dunn said the release of the covenant on 1 July could open up a number of financial advice opportunities.

“The covenant, although it doesn’t apply to advisers or SMSF retirees, creates a benchmark when it comes to good practice for thinking about a retirement strategy, or thinking about managing inflation, market longevity risk and flexible access to savings,” Dunn said.

“I think there is a real opportunity here for advisers to add value to retirement for SMSF retirees.

“As Australian Prudential Regulation Authority-regulated funds start doing more engagement with retirement, [SMSFs] might become more aware of the risks and the need to have a comprehensive retirement strategy.”

She said that unlike the general strategy provided in the covenant, financial advisers can provide a unique approach to a retirement plan and referred it to as an “architecturally designed house” in terms of a practitioner’s ability to instigate an in-depth discussion to understand individual goals.

The covenant acted in a similar way to the requirement for SMSFs to implement an investment strategy that considers risks, liquidity and cash flow, she noted.

“To me that sounds pretty similar to the Retirement Income Covenant, so there is a broad alignment between the SMSF investment strategy and the new covenant for Australian Prudential Regulation Authority fund trustees,” she said.

“So we have an opportunity for SMSFs to build on what they have already been doing to really think more comprehensively about their retirement strategies.”

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