Retirement Income Covenant

Article

Retirement Income Covenant

Response to Treasury on Position Paper

Government and industry have debated the rules around retirement products since Australia’s Future Tax System (the ‘Henry’ Review of 2010) pointed out a key structural weakness of the retirement income system was the “failure to provide products that would allow a retiree to manage longevity risk”.

Later, the Financial System Inquiry (FSI) recommendations set out in its final report in November 2014 included a suggested objective for the superannuation system as well as introducing the concept of Comprehensive Income Products in Retirement (‘CIPRs’). The FSI also recommended that “Government should require superannuation fund trustees to pre-select an option for members to receive their superannuation benefits in retirement… The pre-selected option should… include a regular and stable income stream, longevity risk management and flexibility.

Further work was performed as part of the Retirement Income Review which delivered its final report last year. It concluded that the objective for the system should be developed around the goal “to deliver adequate standards of living in retirement in an equitable, sustainable and cohesive way.

We consider that the Position Paper has set out a structure which has built on the past inquiries and industry feedback. Overall, we consider the strategies outlined will significantly improve the retirement income system over time. We are pleased that the Paper is built on broad principles rather than setting out prescriptive rules such as those which were previously announced in relation to CIPRs.

We also expect the Paper to assist superannuation funds to develop more tailored strategies and products for their members. However, we anticipate that the recommended structure for developing retirement income strategies will cause problems both in timing and implementation.

In this letter, we make suggestions to alleviate these issues. We highlight these key areas needing attention:

  • Expanding the role of trustees.
  • Collecting relevant member data to better assess their personal circumstances.
  • Complications with current laws on delivering financial guidance and advice, including the use of technology to enhance member communications and their understanding of retirement matters.
  • Defining member cohorts.
  • Developing a timeline to ensure smooth implementation of the Retirement Income Covenant.

Published: September 2021

Retirement Income Covenant
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