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Retirement income covenant proposal - straight from the Department of Silly Walks
For reasons known only to the Government, it has been proposed that all superannuation funds (including self managed superannuation funds and small APRA regulated funds) must have a “retirement income” covenant. This covenant will require trustees of superannuation funds to consider the retirement income needs and preferences of their members. It is proposed that the SIS Act will be amended with effect from 1 July 2019 to incorporate the covenant but the commencement will be delayed until 1 July 2020. Further, regulations will be issued to provide “additional guidance and outline in more detail how trustees will be required to fulfil their obligations”.
The retirement income covenant is associated with the Government’s proposal to introduce pooled income streams (also called “comprehensive income products for retirement" or CIPRs) where the super balances are pooled as participating investors exchange their individual account balances for an income stream financed by the pooled balances. One significant feature of these pooled products is the restricted commutation rights which provide that a proportion of the original balance will be paid out and this proportion reduces over time to nil over the life expectancy of the investor. However, if the investor dies within the first half of their life expectancy period, the commutation amount is 100% of the initial balance.
The only problem with the retirement income covenant is that self managed superannuation funds are prevented from offering pooled income streams. Additionally, given that members must be the trustees (subject to limited exceptions) and given that the vast majority of self managed superannuation funds have only one or two members, there seems little point in requiring trustees of self managed superannuation funds to consult with the membership over income stream products which the fund cannot issue to the members.
Hopefully, the Government will restrict this proposal to only those superannuation funds which are permitted to and intend to issue pooled income stream products.
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