Sean Fannin, GBST’s Technical Legislation Consultant reviews the latest legislation that could affect wealth management administration platforms.
Background
Retirement income covenant
On 17 May 2018, the Treasury released the Retirement Income Covenant – Position Paper – Stage One of the Retirement Income Framework. This paper said the retirement phase of the superannuation system is currently under-developed and needs to be better aligned with the overall objective of the superannuation system of providing income in retirement to substitute or supplement the Age Pension.
Following a recommendation by the Productivity Commission in its report, Superannuation: Assessing Efficiency and Competitiveness, the Treasurer, the Hon. Josh Frydenberg MP, announced a review into Australia’s retirement income system on 27 September 2019. The final report of the Retirement Income Review was presented to the Treasurer on 24 July 2020.
On 19 July 2021, the government released a position paper for consultation on the retirement income covenant. The Minister for Superannuation, Financial Services and the Digital Economy, and Minister for Women’s Economic Security, Senator the Hon. Jane Hume, said that the government intends to consult further on exposure draft legislation later this year and it is planned that the covenant will commence from 1 July 2022.
Consultation on the position paper closes on 6 August 2021.
Details
The proposed retirement income covenant is to place a key obligation on superannuation fund trustees to formulate, review regularly, and give effect to a retirement income strategy outlining how they plan to assist their members’ key retirement income objectives.
Senator Hume said: “The introduction of the retirement income covenant is an important step in encouraging the further development of the retirement phase of superannuation. The covenant will codify the requirements and obligations for superannuation trustees to improve retirement outcomes for individuals, while enabling choice and competition in the retirement phase.
In doing so, the covenant will address a key finding of the Retirement Income Review, which highlighted the opportunity to increase retirees’ standards of living by improving their use of superannuation assets in retirement.”
The retirement income framework is the government’s broad approach to address the under-development of the retirement phase of superannuation. This framework is intended to increase the availability of retirement income products that provide higher retirement incomes while establishing flexibility and efficiently managing the risks faced by retirees.
The retirement income covenant will require superannuation fund trustees to develop a retirement income strategy. This is to be a strategic document developed by the trustees that outlines their plan to assist their members achieve and balance the following objectives:
- Maximising members’ retirement incomes;
- Managing risks to the sustainability and stability of members’ retirement incomes; and
- Having some flexible access to savings during retirement.
The position paper says that superannuation fund trustees will be required to consider the broad needs of their members and identify what actions need to be taken to assist their members to meet those needs. This includes considering what guidance the trustees may need to provide to their members in implementing their superannuation fund’s retirement income strategy.
Who will this impact?
The overall impact of the retirement income covenant is intended to be a superannuation fund trustee responsibility. As there is a requirement for the trustees to consider the numerous aspects of their superannuation fund’s membership, the retirement income covenant could lead to the development of more flexible income streams, subject to legislation requirements, to meet the needs of their members.
References
Media Release – Senator the Hon. Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy, and Minister for Women’s Economic Security – Release of the Retirement Income Covenant Position Paper:
https://ministers.treasury.gov.au/ministers/jane-hume-2020/media-releases/release-retirement-income-covenant-position-paper
Treasury – Retirement Income Covenant: https://treasury.gov.au/consultation/c2021-188347
Treasury – Financial System Inquiry Final Report: https://treasury.gov.au/publication/c2014-fsi-final-report
Treasury – Development of the Framework for Comprehensive Income Products for Retirement: https://consult.treasury.gov.au/retirement-income-policy-division/comprehensive-income-products-for-retirement/
Treasury – Retirement Income Review – Final Report: https://treasury.gov.au/publication/p2020-100554
2018/19 Commonwealth Budget – Budget Paper No. 2: https://archive.budget.gov.au/2018-19/bp2/bp2.pdf
Disclaimer
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Posted in: Wealth Management Administration
