On 27 September 2021 the government released exposure draft legislation to introduce a retirement income covenant (Draft Bill). Following the reforms as part of the Your Future, Your Super package (some of which are discussed here), the Draft Bill inserts a new covenant in the Superannuation Industry (Supervision) Act 1993 (SIS Act) that requires trustees of a registrable superannuation entity (RSE) to develop a retirement income strategy for fund members who are retired or are approaching retirement.

Specifically, the Draft Bill will require trustees to have a strategy to assist members to achieve and balance three objectives:

Maximizing their expected retirement income;
Managing expected risks to the sustainability and stability of their expected retirement income; and
Having flexible access to expected funds during retirement.

The intention behind the Draft Bill is to address a perceived focus by ‘big fund’ super trustees on the accumulation phase. Under current law, fund trustees have no specific obligation to consider the needs of fund members in retirement. The retirement income covenant is intended to address this gap.

Importantly, the Explanatory Memorandum to the Draft Bill specifically states that the covenant does not apply to trustees of self-managed superannuation funds (SMSFs). This is a welcome exclusion, noting that SMSF trustees already have a number of obligations under the SIS Act which overlap with those under the covenant. In addition, SMSF members are generally trustees/directors of the SMSF, are typically closer to retirement and will already be focusing on meeting retirement objectives.

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au