The Federal Government has released the consultation documents around its so-called retirement income covenant, making clear that the resultant comprehensive income products in retirement (CIPRs) will need to last the full lifetime of a fund member and that a simple account-based pension (ABP) will not be acceptable.
Importantly, however, superannuation funds will be able to outsource the development and delivery of CIPRs to third parties and the Government has provided scope to move beyond a one-size-fits-all product to the development of tailored CIPRs via the provision of personal financial advice and member best interests.
The position paper was released by the Minister for Revenue and Financial Services, Kelly O’Dwyer who made clear that superannuation funds would be required to help their members meet their retirement income objectives.
"For too long superannuation has been focused only on accumulating savings,” she said. “A retirement income framework is a pivotal part of the Government's reform agenda for superannuation – an agenda squarely focused on protecting and improving outcomes for superannuation members."
O’Dwyer said the new covenant would form the cornerstone of the new framework and would be added to the Superannuation Industry (Supervision) Act 1993, elevating consideration of members' retirement income needs to sit alongside the other fundamental obligations of trustees, such as the investment, risk management and insurance needs.
The Treasury position paper has given stakeholders until 15 June to respond but one of its key elements is its provision of a definition for a CIPR, including that it should provide income for life, rather than only to life expectancy.
It said that superannuation funds would need to ensure that CIPRs were designed in such a way that even if the member lived to 105, they would continue to receive broadly the same level of income from the product.
Further it said that a 100 per cent allocation to an ABP alone would not meet the definition of a CIPR.