Minister for Superannuation and Financial Services Jane Hume said the introduction of the retirement income covenant is an important step in encouraging the further development of the retirement phase of superannuation. 

“The covenant will codify the requirements and obligations for superannuation trustees to improve retirement outcomes for individuals, while enabling choice and competition in the retirement phase,” Ms Hume said.

“In doing so, the covenant will address a key finding of the Retirement Income Review, which highlighted the opportunity to increase retirees’ standards of living by improving their use of superannuation assets in retirement.”

The covenant will place a key obligation on trustees to formulate, review regularly and give effect to a retirement income strategy outlining how they plan to assist their members to balance key retirement income objectives.

Existing covenants in the Superannuation Industry (Supervision) Act 1993 include obligations to formulate, review regularly and give effect to investment, risk management and insurance strategies. 

The government stated it intends to introduce a retirement income covenant in the Superannuation Industry (Supervision) Act 1993 outlining a fundamental obligation of trustees to formulate, review regularly and give effect to a retirement income strategy. 

The strategy will be a strategic document developed by the trustee, outlining their plan to assist their members to achieve and balance the retirement objectives such as maximising their retirement income, manage risks to the sustainability and stability of their retirement income and have some flexible access to savings during retirement. 

“Requiring trustees to have a retirement income strategy ensures that they identify and recognise the retirement income needs of the members of their fund and have a plan to build the fund’s capacity and capability to service those needs,” the government said.

“The strategy should reflect a trustee’s broad understanding of their membership, either for the members of the fund as a whole or for cohorts of members. The characteristics of these cohorts are at the discretion of trustees but could be determined by factors such as superannuation balance, home ownership status, partnered status, or age of retirement. 

“As with the other covenants in the Superannuation Industry (Supervision) Act 1993, APRA, ASIC and the ATO will regulate trustees’ compliance and provide information on how trustees can comply with the new retirement income covenant.” 

The retirement income covenant also aims to build on the substantial reforms the government has recently implemented to improve Australia’s retirement income system. 

“These include the Your Future, Your Super reforms, which ensure the superannuation system works harder for all Australians by reducing waste, holding underperforming funds to account and strengthening protections around the retirement savings of millions of Australians,” Ms Hume added.

“The government also announced several measures in the 2021–22 budget which increase superannuation coverage and provide Australians with improved flexibility to contribute to superannuation.”

All superannuation industry stakeholders, along with other interested parties, are encouraged to provide input on the consultation paper, with the consultation period ending on 6 August 2021.

The government will consult further on exposure draft legislation later this year. Subject to the passage of legislation, this covenant will commence from 1 July 2022.