On 25 Nov 2021, the Government introduced theCorporate Collective Investment Vehicle Framework and Other Measures Bill 2021, into the Federal Parliament (the Lower House) which includes the long awaited ‘Retirement Income Covenant’ amendments for non-SMSF super funds. These amendments aim to supplement existing trustee investment strategy obligations on the accumulation phase so there are obligations that also focus on the needs of beneficiaries in retirement phase.
The centrepiece of this Bill is a new ‘Corporate Collective Investment Vehicle’ (hence the name of the Bill) and it would extend the ‘loss carry back’ provisions; remove a deferred taxing point for ESSs; and add/subtract some DGRs (see related TT article).
Extract from Explanatory Memorandum
(Chapter 17, the Schedule 9 ‘Retirement Income Strategy’ covenant amendments – p317)
Outline of chapter
- Schedule 9 to the Bill inserts a new covenant in the SIS Act that requires trustees of an RSE to develop a retirement income strategy for beneficiaries who are retired or are approaching retirement. This covenant is known as the retirement income covenant.
- The retirement income covenant requires trustees to have a strategy to assist beneficiaries to achieve and balance the following three objectives:
- maximising their expected retirement income;
- managing expected risks to the sustainability and stability of their expected retirement income; and
- having flexible access to expected funds during retirement.
- This covenant does not apply to trustees of self managed superannuation funds.
- All legislative references in this Chapter are to the SIS Act unless otherwise stated.
Context of amendments
- In the 2018-19 Budget, the Government committed to introducing a retirement income covenant with the intention of improving retirement outcomes of individuals, while enabling choice and competition in the retirement phase.
- The existing legal obligations on superannuation trustees focus primarily on the accumulation phase and there are no specific obligations to consider the needs of beneficiaries in retirement. The retirement income covenant is intended to address this gap.
- It is intended that member outcomes in retirement will improve by encouraging trustees to focus on and implement strategies for beneficiaries in retirement or approaching retirement.
Summary of new law
- Schedule 9 to the Bill amends the SIS Act to introduce a covenant which requires trustees to formulate, review regularly and give effect to a retirement income strategy for beneficiaries who are retired or approaching retirement.
Comparison of key features of new law and current law
- Comparison of new law and current law
| New law | Current law |
| A new covenant applies that requires trustees of an RSE to prepare a retirement income strategy to assist beneficiaries achieve and balance three objectives:
1. maximising their expected retirement income; 2. managing expected risks to the sustainability and stability of their expected retirement income; and 3. having flexible access to expected funds during retirement.
|
No equivalent. |
Extract from Bill – Schedule 9
Superannuation Industry (Supervision) Act 1993
1 After subsection 52(8)
Insert:
Retirement income covenants
(8A) The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:
(a) to formulate, review regularly and give effect to a retirement income strategy that meets the requirements in section 52AA;
(b) to take reasonable steps to gather the information necessary to inform the formulation and review of the strategy;
(c) to record the strategy in writing;
(d) to record in the document in which the strategy is recorded:
(i) each determination made by the trustee for the purposes of the strategy, and the reasons for the determination; and
(ii) each other decision made by the trustee in formulating, reviewing or giving effect to the strategy that the trustee considers to be significant, and the reasons for the decision; and
(iii) the steps taken to gather the information that informed the formulation of the strategy, and the reasons for taking those steps;
(e) to make a summary of the strategy publicly available on the website of the entity.
(8B) Subsection (8A) does not apply if the entity is a regulated superannuation fund, and the only benefits it provides to, or in respect of, its members are any of the following:
(a) death benefit;
(b) permanent incapacity benefit;
(c) a benefit provided if, and only if, a member is suffering temporary incapacity (within the meaning of the superannuation data and payment standards).
2 After section 52
Insert:
52AA Retirement income strategy requirements—registrable superannuation entities
(1) A retirement income strategy formulated for an entity by a trustee for the purposes of subsection 52(8A) must meet the requirements in this section.
(2) The strategy must be for the benefit of beneficiaries of the entity who are retired or who are approaching retirement and must address how the trustee will assist those beneficiaries to achieve and balance the following objectives:
(a) to maximise expected retirement income over the period of retirement;
(b) to manage expected risks to the sustainability and stability of retirement income over the period of retirement of the following kinds:
(i) longevity risks;
(ii) investment risks;
(iii) inflation risks;
(iv) any other risks to the sustainability and stability of the retirement income;
(c) to have flexible access to expected funds over the period of retirement.
Determining the class of beneficiaries who are retired or who are approaching retirement
(3) The trustee must determine the class of beneficiaries of the entity who are retired or who are approaching retirement for the purposes of the strategy. The class may be determined excluding beneficiaries who:
(a) only hold a defined benefit interest in the entity; and
(b) are not eligible to commute that benefit (whether during the period of retirement or otherwise).
(4) The strategy may divide the class of beneficiaries into sub‑classes and make different provision in respect of those sub‑classes.
Determining meaning of retirement income and period of retirement
(5) The trustee must determine the meaning of retirement income for the purposes of the strategy, which:
(a) must include income, net of tax, received during the period of retirement of the following kinds:
(i) income paid from, or supported by, a superannuation interest in the entity;
(ii) income from an age pension under the Social Security Act 1991; and
(b) may include income from any other source if the trustee determines that it is appropriate to include income from that source.
(6) The trustee must determine the meaning of period of retirement for the purposes of the strategy.
[APH: Current Bills Summary, Bill, Expl Memo, p317]
[Tax Month – November 2021 – Previous 2021] 28.11.21