Aaron Dunn, CEO of Smarter SMSF, said when the draft of the Retirement Income Covenant was introduced within the SIS Act on 1 July 2022, SMSFs were excluded for several reasons.
He said the original position paper of the covenant stated that it would apply to “all trustees, including trustees of SMSFs”.
However, the sector was ultimately excluded as the government decided it would not burden trustees with “unnecessary red tape”.
On Monday, the government released a discussion paper examining how superannuation can be better used in retirement, with questions raised about the ability of SMSFs to manage risk and maximise income.
It stated that planning for retirement income “requires retirees to solve a ‘risky, long-horizon, multi-dimensional problem’ – a problem that any individual retiree cannot be expected to solve on their own”.
“SMSF trustees also face these complex risks and decisions,” it continued.
“While SMSF members are encouraged to consider their long-term retirement income requirements, they do not receive the same entitlement to support that members of Australian Prudential Regulation Authority-regulated funds receive under the Retirement Income Covenant.
“There is no safeguard that they will receive an equivalent level of guidance, risk management or retirement income product solutions.”
Mr Dunn said in the original position paper there were several concerns raised by the industry concerning the impact it would have on SMSFs.
These included the potential overlap between the Retirement Income Covenant and Investment Strategy Covenant on investment composition and risk which may have caused confusion and/or duplication. Additionally, there was concern regarding the role of advice, in particular with a large cohort of unlicensed accountants seen as the primary ‘adviser’ to the majority of SMSF trustees.
Finally, the role of SMSF auditors was raised and the potential to extend the scope of the audit to check compliance with the covenant, would increase the time and complexity of the audit.
Mr Dunn said if SMSFs were to be included under the covenant going forward, there would need to be a discussion regarding advice provision and access.
“There would also need to be discussion around what role auditors would play in the scope,” he said.
“There were some elements in the original covenant that could have been positive to the SMSF sector around things like guidance with retirement planning, Enduring Power of Attorney and loss of capacity, but the ATO already talks about these things when someone is establishing an SMSF.”
