In a significant nod to the maturation of Australia’s superannuation system, non-SMSF trustees will soon be required to prepare retirement income strategies for members after a bill carrying the long-awaited Retirement Income Covenant (RIC) passed this week.
The covenant will force trustees to extend their focus from investment strategies in the accumulation phase to planning for divestment, balancing three objectives: managing expected retirement income, expected risks and flexibility.
The new law, which will be wedged into the SIS Act, is the culmination of a long campaign by stakeholders to get trustees as interested in helping clients manage decumulation as they have been in recruiting new members and swelling assets under management.
The obligations are broad, with the scope encompassing a requirement for trustees to “formulate, review regularly and give effect to” retirement income strategies for members approaching or in retirement.
The covenant also states trustees should take “reasonable steps” to gather information required to formulate and review the strategy, record each determination in the process as well as the underlying reasoning, and make a summary of the strategy available on the fund’s website.
In addition, trustees must prepare a governance document outlining “in generality” how they plan to assist retirees.
Funds getting on it
Some funds have already gotten ahead of the game; QSuper, primed to merge with Sunsuper to form the new Australian Retirement Trust, announced the release of a proprietary retirement income product modelled on a Canadian example at last year’s Investment Magazine Retirement Summit.
How funds handle the RIC will vary, however, with trustee interpretation of the bill’s wording being balanced against the needs of individual members and idiosynchratic business dynamics.
Whlie largely supported, the covenant architecture arrival has faced criticism. The point has been made that there are other fundamental, client-centric issues in the superannuation landscape that need addressing. Innovation shouldn’t come at the expense of simplicity, according to Bennelong Funds Management chief client strategy officer Amara Haqqani.
There have also been calls for a closer look at how the boost of product in the superannuation landscape will be handled from a best-interest-duty perspective, with concerns that the rapidly consolidating sector could become full of vertically integrated behemoths.
Providers well positioned
Existing retirement income specialists such as Challenger and Alianz Retire+ will be looking to position their products as ready-made solutions to the RIC puzzle.
“This is a great opportunity to encourage the development of high quality, innovative and sustainable retirement income products, giving Australians more choice to manage the unique risks they face in retirement,” stated Challenger CEO Nick Hamilton.
“We’ve been engaging with super funds on this important reform and look forward to partnering with them over time to deliver innovative retirement income solutions as Australians plan for and enter retirement.”