Retirement Income Covenant to crack the super ‘nest egg’

The retirement income covenant is a welcome reform but its benefits should apply to everyone.

Super Consumers Australia welcomes the introduction of the retirement income covenant legislation, which will significantly improve how super funds serve their members.

“Too often, super funds have done the bare minimum when it comes to understanding members’ needs and helping them plan for retirement,” says Super Consumers Australia director Xavier O’Halloran. 

“The covenant will finally put the onus on funds to contemplate how best to maximise peoples’ retirement incomes. Funds will be required to collect relevant data to help them understand their membership and use this to develop strategies and products that assist people to make the most of their retirement income.”

However the carve out of over a million people in self-managed super funds (SMSFs) runs counter to the the Retirement Income Review’s finding that there has been insufficient attention on assisting people to optimise their retirement income.

“The average age of SMSF members is 60, which is an important time to focus on retirement income needs. Alongside a plan for their income, trustees and their advisers need plans and advice for dealing with things like cognitive decline and exit strategies if a spouse responsible for managing the fund passes away.”

“These are all things the SMSF sector has known about for a long time and that need to be dealt with properly.”

“SMSFs are good for some, but aren’t a ‘whole-of-life’ solution in the vast majority of cases. The focus needs to quickly shift to how we can address these issues. A holistic solution includes a covenant that is fit for purpose for SMSFs, a review of minimum drawdown rates and attention on how financial advisers can assist as part of the quality of advice review.