IFPA wants SMSFs excluded from RIC
The Institute of Financial Professionals Australia has called on the government to exclude SMSFs from the Retirement Income Covenant because the sector’s trustees are already “highly engaged” with their superannuation.
In its submission to Treasury on the retirement phase of super discussion paper, the IFPA said including SMSFs under the RIC will only place further red tape obligations on SMSFs without any benefit to their members’ retirement needs.
The RIC requires super funds to propose suitable retirement income products and outcomes for fund members. SMSFs were excluded from the RIC when it commenced on 1 July 2022 for several reasons, mainly not to burden SMSF trustees with more unnecessary red tape due to potential duplication or overlap between the SMSF investment strategy covenant and the RIC.
The IFPA said the law currently requires SMSF trustees to regularly review and formulate an investment strategy that gives regard to all the circumstances of the fund, at least on an annual basis.
“Having another covenant will also cause more confusion for trustees as they are already considering the investment composition and risk for their entire fund,” said IFPA head of superannuation and financial services, Natasha Panagis.
“SMSF auditors are also required to check compliance with the investment strategy covenant so extending the scope of their audit to also check compliance with the RIC will also lead to more red tape and increase the time and complexity of the audit.”
The submission said the IFPA is seeing an increasing number of funds move from the accumulation phase to the retirement phase as the system matures and Australia’s population ages.
“Around 45 per cent of SMSFs are already in retirement phase which illustrates that SMSFs have been leading the way in the retirement income area for some time now,” Ms Panagis stated.
“It is also our experience that many SMSF trustees are seeking the advice of trusted professionals to assist with their investments, manage risk with their portfolios, ensure they have access to their savings and to maximise their income.”
Many trustees are also reviewing estate and succession planning needs and the IFPA said it doesn’t believe there is a need for another covenant to dictate how SMSF members should manage their retirement savings.
The submission said the IFPA welcomed the introduction of more retirement income products in the market but said care must be taken if such products are made available to SMSFs to avoid past mistakes like that which occurred in 2006 when SMSFs were prevented from offering legacy pensions.
Ms Panagis said this change has seen many SMSFs stuck in old legacy pension products that they cannot get out of easily.
It added if newer retirement income products become available, how they are offered to SMSFs will require great care so previous mistakes can be avoided.
Ms Panagis added it is important that account-based pensions remain available due to their popularity and the flexibility they provide retirees.
“However, if the government is of the view that retirees are not drawing down on their superannuation and are instead saving it for a rainy day or estate/succession planning purposes, we suggest the government revisit the drawdown rates,” she said.