“For too long superannuation has been focused only on accumulating savings,” Minister for Revenue and Financial Services Kelly O’Dwyer said on Thursday.
“A retirement income framework is a pivotal part of the government’s reform agenda for superannuation – an agenda squarely focused on protecting and improving outcomes for superannuation members.”
The retirement income covenant, confirmed in the 2018-19 budget, would require trustees help members meet their retirement income goals.
“To fulfil the overarching purpose of superannuation, it is essential that trustees develop a retirement income strategy and consider the retirement income needs of their members,” Ms O’Dwyer said.
The position paper is open for interested parties to provide submissions on by 15 June this year and will be the “cornerstone” of the government’s retirement income framework.
The implementation of the covenant and its associated regulations will be followed by the development of standardised product disclosure metrics. Treasury says these metrics will help Australians understand and make decisions about retirement income products.
The proposed covenant has two key principles.
1. Retirement income strategy
The position paper said trustees should have a “fundamental obligation” to help members meet their retirement income objectives.
This means super trustees would be required to develop strategies to ensure appropriate products are developed and offered to retirees.
Trustees would need to take into account members’ potential life spans, the costs and benefits of longevity risk-management, general risk management needs, access to capital and members’ preferences in regard to these factors.
The products and strategies would also need to consider member eligibility for the age pension, the likelihood and severity of potential cognitive decline and the respective costs and benefits of in-house and third-party products.
Trustees would be required to provide guidance or tools to allow members to move between the funds’ different products.
“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,” the position paper said.