On Mon 19.7.2021, Treasury released a Position Paper on the proposal, in the 2018 Federal Budget, to extend the SIS Act, so as to introduce a new covenant, binding trustees of superannuation funds to formulate, review regularly and give effect to a retirement income strategy, being a strategic document outlining the trustees’ plan to assist their members to achieve and balance the objectives of: (i) maximising their retirement income; (ii) managing risks to the sustainability and stability of their retirement income; and (iii) having some flexible access to savings during retirement. Submissions are due by 6 August 2021, with a view to having the law amended in time for Trustees to have this document in place by 1 July 2022.
See below for further detail.
The Government committed in the 2018‑19 Budget to introducing a retirement income covenant for superannuation trustees and consulted on the covenant in June 2018. This position paper reflects the feedback from that consultation process and presents the Government’s refined policy, with the aim of guiding trustees ahead of the covenant being legislated and taking effect from 1 July 2022. [On 22 May 2020, the Government deferred the introduction of the retirement income covenant to 1 July 2022. This deferral was necessary to allow for continued consultation and legislative drafting to take place following the COVID-19 crisis and for the covenant to be informed by the Retirement Income Review.]
The covenant is a key stage of the Government’s retirement income framework. 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.
Existing covenants in the Superannuation Industry (Supervision) Act 1993 include obligations to formulate, review regularly and give effect to investment, risk management and insurance strategies. The Government intends to introduce a retirement income covenant in the Superannuation Industry (Supervision) Act 1993 outlining a fundamental obligation of trustees to formulate, review regularly and give effect to a retirement income strategy.
The strategy will be a strategic document developed by the trustee, outlining their plan to assist their members to achieve and balance the following objectives:
- maximise their retirement income
- manage risks to the sustainability and stability of their retirement income; and
- have some flexible access to savings during retirement.
Requiring trustees to have a retirement income strategy ensures that they identify and recognise the retirement income needs of the members of their fund and have a plan to build the fund’s capacity and capability to service those needs.
The strategy should reflect a trustee’s broad understanding of their membership, either for the members of the fund as a whole or for cohorts of members. The characteristics of these cohorts are at the discretion of trustees but could be determined by factors such as superannuation balance, home ownership status, partnered status, or age of retirement.
As with the other covenants in the Superannuation Industry (Supervision) Act 1993, APRA, ASIC and the ATO will regulate trustees’ compliance and provide information on how trustees can comply with the new retirement income covenant.
The Government welcomes feedback and comments on this position paper. Any comments received will feed into the development of legislation to give effect to the retirement income covenant. Subject to the passage of legislation, trustees will be required to have in place a retirement income strategy as outlined in this position paper, from 1 July 2022.
SUBMISSIONS are due by 6 August 2021