Industry groups have welcomed the Retirement Income Covenant (RIC) passage of legislation which received bi-partisan support and will begin from 1 July, 2022.
Super Consumers Australia (SCA) said the RIC would bring a much-needed focus to how superannuation funds could support Australians manage their income in retirement, but that attention needed to shift to how best support people through the complex retirement planning process.
SCA director, Xavier O’Halloran, said: “There hasn’t been enough focus on giving Australians the guidance and confidence to use their retirement income once they’ve finished working.
“The confirmation that the covenant will begin in July is a welcome shift towards ensuring Australians have a better quality of life in retirement by making more efficient use of their retirement income.”
Financial Services Council (FSC) acting CEO, Blake Briggs, said: “This is a historic day for financial services, with the passage of two vital reforms that have been long-supported by the FSC: the Corporate Collective Investment Vehicle (CCIV) and the covenant.
“The CCIV will open up new export opportunities for Australia’s funds management industry. We have one of the largest funds industries in the world, but regulatory settings have discouraged us from using this strong base to export our expertise to the rest of the world.
“Only 5% of the funds managed in Australia comes from offshore ($145bn out of $2.6 trn), showing the significant scope for Australia to build on our existing strengths to export this to the globe,” Briggs said.
Challenger managing director and CEO, Nick Hamilton, said: “The passage of the Covenant is a very important step in building the retirement phase of the superannuation system, ensuring it works as well for Australians in retirement as it does during their working lives.
“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.”
Financial Planning of Australia (FPA) CEO, Sarah Abood said: “On behalf of its members, the FPA has been long calling for new retirement income products to be developed for Australian retirees which allow them to select the best options to suit their unique retirement needs.
“The ‘one size fits all’ approach in the system has limited the ability for retirees to mix income, lump sum, longevity and market risks adequately. Given these changes, financial planners now look forward to their clients having the ability to access a broader range of options.”
The Association of Superannuation Funds of Australia CEO< Dr Martin Fahy, said: “The legislating of a retirement income covenant is a significant step in encouraging the further development of the retirement phase of superannuation and should assist members to be able to make informed decisions in retirement.
“With a maturing super system, we expect to see a greater proportion of retirees relying less on the Age Pension and more on their superannuation. Given this, it is important that members are assisted to make informed decisions about how to use their super savings to increase their standard of living in retirement.”
O’Halloran said the next step was helping consumers navigate the complexity of RIC products.
“When the UK reformed its pension system, the government introduced a ‘guidance guarantee’ to ensure everyone could access free, impartial, quality financial advice about their retirement options,” he said.
“Eventually, this guarantee led to the development of a ‘one-stop-shop’, bringing together disparate resources and providing a trusted source of conflict-free advice to complement existing advice channels.
“We’re calling for a similar guarantee to help all Australians navigate these new options and get the most out of the improvements to the system.
SCA said it saw value in expanding the RIC over time so that the self-managed super fund (SMSF) sector could benefit from a greater focus on retirement incomes.
