Including SMSFs in RIC has its benefits: expert
There are pros and cons for including SMSFs in the retirement income covenant, says a leading adviser.
In the latest SMSF Adviser podcast, Aaron Dunn, CEO of Smarter SMSF, said if the covenant were to operate successfully with the inclusion of SMSFs, it would need to ensure that it didn’t overlap with a range of other aspects such as investment strategy requirements.
Mr Dunn said the government raising the prospect of including SMSFs under the RIC could be a way for it to “disincentivise the role” of SMSFs.
“SMSFs have probably north of 40 per cent of clients already in the retirement phase so it has led the way in this area,” he said.
“The government has naturally asked the question as it looks to the outcomes of this and through consultation on the retirement income policy, and more broadly, whether the RIC should actually have a role to play within the SMSF sector.”
Mr Dunn said the inclusion of SMSFs in the covenant was previously raised before it was legislated on 1 July 2022.
“Ultimately, there were some concerns raised including timeframes that saw the government quickly remove SMSFs from that landscape,” he said.
“But I think there may be something that can be included that is a little more specific to SMSFs.”
Mr Dunn said that historically there has been legislation that has been “carved out very specifically for SMSFs” such as the non-arm’s length expenditure in 2023.
“So there's certainly elements that the government, when we look back, appear to be trying to disincentivise SMSFs but in this instance, I think there is an opportunity to look at the positive elements of this and see whether they can apply,” he said.
“However, we can't really try and put a square peg into a round hole as some of the retirement income covenants would potentially do.”
He added the ATO is already including the importance of setting up an exit plan in its guidance on establishing an SMSF.
“In the SMSF sector we are already identifying things around what to do in succession planning and the event of death and making sure all these elements are tied up, not waiting for it to happen, but planning for these things well in advance,” he said.
“I think there's an opportunity for the sector to formalise those in some way, but the language is already fairly embedded into the industry because we have so many Australians in self-managed funds that are in that baby boomer and later stage of life.”
