The federal government has released details of its plan to help retirees spend more of their super before they die, but the draft legislation excluded those who had self-managed super funds (SMSFs).
The government’s Retirement Income Covenant aims to address the issue of most retirees dying with most of their wealth still available, and give them the confidence to spend their superannuation savings.
The new law requires super funds to prepare a retirement income strategy for beneficiaries that maximises their expected retirement income. It also aims to manage expected risks and provides flexible access to their funds during retirement.
However, SMSFs are exempted from the new obligations.
The retirement income strategy could include providing a range of assistance, such as developing specific retirement income products and drawdown patterns that provide higher incomes throughout retirement. It could also provide tools such as expenditure calculators to identify income and capital needs over time.
The strategy could also improve the quality of information about key retirement topics, such as eligibility for the Age Pension, the concept of drawing down capital as a form of income, or the different types of income streams available.
The government’s original position paper included introducing a retirement income covenant for SMSFs, but section 1.3 of the exposure draft legislation, released on Monday, states that the “covenant does not apply to trustees of self-managed superannuation funds”.
In July, the Australian Taxation Office revealed 27 of Australia’s biggest self-managed super funds held more than $100 million each in concessionally taxed savings in the 2019 financial year.
Superannuation minister Jane Hume told The Australian Financial Review that the government did not want to impose any unnecessary red tape on SMSF trustees.
“Australians are increasingly considering SMSFs as an option for them actively engaging with their retirement income,” Senator Hume said.
“This is a welcome development and the Morrison government has no desire to make operating a SMSF more onerous than it needs to be.”
She explained that SMSFs were already subject to stringent regulations and that trustees already had a focus on retirement income.
SMSF Association chief executive John Maroney, who lobbied for the exemption, said he was pleased that the government had listened but said it would still be wise for trustees in the sector to have a retirement income policy in place.
“We are pleased that the government has recognised some of the inconsistencies and unintended consequences that could have arisen if this new requirement also applied to SMSFs,” Mr Maroney told The Australian Financial Review.
Jeremy Cooper, chairman of retirement income at annuities group Challenger, said the introduction of the covenant, which will take effect from 1 July 2022 if it passes into law, would provide big benefits for retirees.
“This is an important step in ensuring that the superannuation system works as well for Australians in retirement as it does before retirement, converting their retirement savings into secure income for life,” Mr Cooper said.
“To date, the retirement phase has really only been a tax concept. The covenant will mean that members will be offered better ‘retirement pay cheques’ from super than is currently the case.”
The draft legislation and supporting materials are available on the Treasury website and interested parties are able to provide feedback up until 15 October.
Do you have your money in a SMSF? Are you glad this group has been exempted from the retirement income covenant? Are you worried you may be forced to spend more of your super than you are comfortable spending? Why not share your thoughts in the comments section below?
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