Retirement, SMSF, SMSFA, Superannuation

SMSF Association opposes RIC inclusion

SMSF Association Investment strategy Retirement Income Covenant

ATO communication with SMSF members at key points in time would be more useful than including their funds under the blanket of the Retirement Income Covenant.

The SMSF Association has reiterated its opposition to including SMSFs in the Retirement Income Covenant (RIC) and has advocated for the government to focus on providing opportunities to trustees to refine their funds’ investment strategy to meet retirement income needs instead.

In its submission to Treasury’s consultation on the retirement phase of superannuation, the association called for a practical approach to maximising the retirement outcomes for SMSF trustees and argued incorporating these funds into the covenant would likely lead to increased costs, complexity and administrative burden.

Specifically, the industry body restated its objection to the proposed measure was made primarily on the basis that the obligation imposed upon SMSF trustees to formulate a compliant investment strategy already accomplished the aims of the RIC.

“Several components of the Retirement Income Covenant are addressed within the existing investment strategy covenant, including risk, liquidity, investment objectives, cash-flow requirements and diversification,” it stated.

“This can be documented at either the fund or the individual member level. A RIC would likely broaden the scope of the audit undertaken by the ASIC (Australian Securities and Investments Commission)-approved SMSF auditor.

“We have historically seen regulator compliance activities and education campaigns that have lifted the quality and standard of SMSF investment strategies. A similar process could be adopted here to educate trustees and ensure that they are considering the income needs of the members in the fund.”

To that end, it suggested a more direct line of communication between the ATO and SMSF trustees could help to alleviate concerns over the lack of access to information fund members may encounter when planning their retirements.

This issue was highlighted in a discussion paper released by Treasury as the primary reason for re-evaluating the decision to exclude SMSFs from the RIC in 2021.

“Individuals who are not advised will rely on nudges or communications received from their APRA (Australian Prudential Regulation Authority) fund trustees,” the association stated.

“There is also an opportunity for the ATO to engage with taxpayers to reinforce that messaging, ensure nudges are occurring for any unadvised SMSF members or individuals who do not have a superannuation account.

“Simple direct [communications] from the ATO to members at different hurdle points, such as various ages, could assist in flagging some of the things they should be thinking about. It is also important to encourage members to seek advice from a suitable qualified professional.”

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