Retirement
Federal government moves to implement retirement income covenant
New draft legislation promises to enable greater choice for retirees looking to reap the benefits of their superannuation fund.
Federal government moves to implement retirement income covenant
New draft legislation promises to enable greater choice for retirees looking to reap the benefits of their superannuation fund.
The federal government has released draft legislation detailing plans to introduce a retirement income covenant.
Federal Minister for Superannuation Jane Hume said that the move would give retirees “the confidence to spend their superannuation savings” while also enabling additional choice and competition in the retirement phase of superannuation.
If passed, the legislation would codify new obligations for superannuation trustees and force them to outline a retirement income strategy for members.
According to the draft legislation, “current legal obligations of superannuation trustees have a focus primarily on the accumulation phase and there are no specific obligations to consider the needs of beneficiaries in retirement”.
Essentially, the new retirement income covenant is intended to address this gap. The idea is that forcing super funds to put together a future-proof plan, detailing what a member’s retirement would look like, would either lead to better outcomes or, in the event that their current fund falls short, the opportunity to look elsewhere for a better product.
“The strategy must consider how the trustee will assist their members to balance maximising their retirement income, managing risks, and have some flexible access to savings,” Ms Hume explained.
Ms Hume framed the legislation as a complement to the Your Future, Your Super reforms passed earlier this year.
This bundle of legislation introduced a number of new requirements for the Australian superannuation sector, such as an annual performance test that aims to make it clearer to consumers which funds are underperforming.
The government has estimated that these reforms will save Australians around $17.9 billion over the next 10 years.
The federal government has invited stakeholders to provide their feedback on the draft legislation via the Treasury website. Consultation will conclude on 15 October 2021, with the legislation expected to come into effect from 1 July 2022.
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