Retirement, Superannuation

Govt to examine SMSF retirement income role

Superannuation Retirement

The government will examine how superannuation is being used in retirement and has asked how SMSFs are managing risks and maximising income for members.

The federal government has released a discussion paper examining how superannuation can be better used in retirement, with questions being raised about the ability of SMSFs to manage risk and maximise income.

The paper, released today by Treasurer Jim Chalmers and Assistant Treasurer and Financial Services Minister Stephen Jones, covers how superannuation members can be supported in navigating the retirement income system, how funds can be supported to deliver better retirement income products and services and how lifetime income products can become more accessible.

“While there is recognition of super’s importance in building nest egg savings, there has been less attention on optimising its role in retirement. There’s a clear need for better information, support and well-rounded income products to help retirees make the most of their super,” Chalmers and Jones said in a joint media statement.

“The welcome and important focus on the accumulation phase of super needs to be matched by a similar focus on the retirement phase.”

Jones and Chalmers said 84 per cent of retirement savings were held in account-based or allocated pensions, with a further 3.5 per cent held in annuities, and superannuation funds needed to do more in providing products and services suited for retirement.

The paper noted retirees were faced with managing income from superannuation, the age pension and personal savings, with many, including SMSF trustees, lacking the information needed to manage these incomes sources for the long term.

“Planning for retirement income requires retirees to solve a ‘risky, long-horizon, multi-dimensional problem’ – a problem that any individual retiree cannot be expected to solve on their own,” it stated.

“To make matters even more complicated, retirement income products and annuities are often complex, making them difficult for members to understand and compare.

“SMSF trustees also face these complex risks and decisions.

“While SMSF members are encouraged to consider their long-term retirement income requirements, they do not receive the same entitlement to support that members of Australian Prudential Regulation Authority-regulated funds receive under the Retirement Income Covenant.

“There is no safeguard that they will receive an equivalent level of guidance, risk management or retirement income product solutions.”

As such, the paper put forward a potential policy change of including SMSFs within the Retirement Income Covenant, which requires superannuation funds to propose suitable retirement income products and outcomes for fund members.

Consultation questions included in the paper also asked what approaches do SMSF trustees take to manage risk, ensure they have access to savings and maximise their income and if there are barriers to improving how SMSF trustees achieve these objectives, and what role can government or industry can play to improve these outcomes.

Submissions to Treasury on the discussion paper close on 9 February 2024.

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