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Accountants reject need for retirement income covenant

Tony Zhang
23 August 2021 — 2 minute read

The joint accounting bodies have rejected the need for a proposed retirement income covenant, stating it only will create increased costs for superannuation funds and lead to unnecessary outcomes. 

In a recent joint submission to the Treasury, Chartered Accountants ANZ and CPA Australia stated that the proposed Retirement Income Covenant (RIC) is unnecessary and believe the proposed covenant will add to the costs of running superannuation funds and will be of little or no practical benefit to fund members, trustees, regulators or the government.

The joint bodies said that contrary to the assertions in the Treasury’s Position Paper (which has its genesis in Treasury’s Retirement Income Review), Australian Prudential Regulation Authority data shows that retirees deplete their superannuation retirement savings in retirement.


“CA ANZ and CPA Australia consider that retirees spending their non-superannuation monies in retirement is not a superannuation fund trustee’s business or concern,” the joint accounting bodies said.

“And we have significant concerns about the implication in the Position Paper that superannuation fund trustees be required to effectively offer a form of financial advice to retired members and members ‘close to retirement’.”

In a joint submission, the accounting bodies noted that the proposed RIC is a duty that is designed to further develop the retirement phase of superannuation.  

However, it does not support the proposed new covenant for several reasons, as the complexity of retirement planning in the RIC results in a process which is convoluted and difficult for many to navigate.

“Consequently, we believe that it would be more efficient for this process to be streamlined and simplified prior to subjecting trustees to increased compliance costs,” the submission said.

“Many of the Position Paper’s assertions are misleading or incomplete, including the premise that retirees are not drawing down their superannuation savings prior to death.

“The Position Paper does not adequately address member perceptions of mortality and longevity risk, and a number of the recommendations may provide an incentive to members to simply self-insure against these risks outside of superannuation. We have further noted evidence which supports the premise that Australians are already unlikely to draw down on non-superannuation assets.”

A number of the recommendations made in the Position Paper also consist of requirements which trustees are already subject to, including requirements under the best financial interests duty, sole purpose test and requirements regarding the formulation and maintenance of investment strategies. 

The accounting bodies said they are concerned that requirements for trustees to consider their members’ non-superannuation investments is beyond their remit, and in the case of SMSF trustees who are also members, provide questionable value.

“We note that there are likely to be substantial impacts on SMSF trustees, who are also the members of their funds,” the accounting bodies said.

“The additional burden of developing a retirement income strategy may require expensive advice for actions already explained in existing documentation (including the fund’s investment strategy) as well as being implied by compliance with the sole purpose test and best financial interests duty.

“The recommendations regarding trustees providing appropriate guidance to their members is further likely to create a burden of additional compliance costs. 

“In addition, a grey area is created where what policymakers may consider is general financial product advice may be perceived by members as personal financial product advice. This may conflict with existing member engagement strategies as well as business planning at the trustee level.”

Tony Zhang

Tony Zhang

Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.

Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.

Accountants reject need for retirement income covenant
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