The Institute of Financial Professionals Australia (IFPA) is calling on the federal government to exempt SMSFs from the Retirement Income Covenant (RIC) on the basis trustees are already effectively handling their retirement savings and should not be subject to additional regulations.
The industry body used a submission in relation to a discussion paper released by Treasury in December to express its opposition to the proposal.
“SMSFs should continue to be excluded from the RIC obligations. This is primarily because a RIC is not required for SMSF trustees as they are already heavily engaged with their superannuation, including the retirement phase,” the IFPA submission stated.
“A RIC obligation would therefore merely place further red-tape obligations without any benefit to SMSF members’ retirement needs.”
Additionally, it suggested the obligations already placed on fund members by the Superannuation Industry (Supervision) (SIS) Act align with the RIC’s objectives.
“The law currently requires SMSF trustees to regularly review and formulate an investment strategy that gives regard to all the circumstances of the fund, at least on an annual basis,” it stated.
“Having another covenant will also cause more confusion for trustees as they are already considering the investment composition and risk for their entire fund.
“It must be remembered that SMSFs were excluded from the RIC when it commenced on 1 July 2022 for several reasons, mainly not to burden SMSF trustees with more unnecessary red tape due to potential duplication or overlap between the SMSF investment strategy covenant and the RIC.
“SMSF auditors are also required to check compliance with the investment strategy covenant, so extending the scope of their audit to also check compliance with the RIC will also lead to more red tape and increase the time and complexity of the audit.”
It also cited recent ATO statistics showing almost half of SMSFs are currently in retirement phase and for newly established funds the ability to exercise more control remains the most popular reason for starting one.
As such, it contends since trustees are already actively managing and maximising their retirement savings, incorporating SMSFs into the RIC would essentially be redundant.
“For all these reasons, we don’t believe there is a need for another covenant to dictate how SMSF members should manage their retirement savings as the framework exists already for member trustees to take on this important responsibility,” it said.