The Federal Government has added to superannuation industry concerns that it is looking to far-reaching changes in the post-COVID-19 environment, with the announcement that its deferring plans to introduce the Retirement Income Covenant from 1 July.
The announcement comes on top of the Government’s deferral of its Retirement Income Review and comes at the same time as a number of back-benchers continue to advocate for a far-reaching review of the superannuation regime including compulsion and as the Government’s hardship early release regime continues to play out.
Announcing the deferral of the Retirement Income Covenant, the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, said it was necessary to allow continued consultation and legislative drafting to take place place following the Coronavirus crisis.
She noted that superannuation laws currently require trustees to formulate, review and give effect to investment, risk management and insurance strategies. The purpose of the Retirement Income Covenant is to establish an additional obligation for trustees to formulate a retirement income strategy for their members.
Hume said deferral of the Retirement Income Covenant would allow drafting of the measure to be informed by the Retirement Income Review.
“We’ve been working for some time on a Retirement Income Covenant. While efficient accumulation is imperative and we are steadily chipping away at the inefficiencies of that part of the system, we need to build a smoother transition from the accumulation to the de-accumulation phase,” she said.
“Of course, there is nothing stopping funds and their trustees from developing retirement income strategies now and we’d encourage them to do so. Trustees don’t need to wait for us to legislate the Covenant.”
A number of Government back-benchers have been questioning the rationale underpinning the existing superannuation system and have raised the issue of compulsion for younger, low balance members.
At the same time, some superannuation executives have expressed concern that the current hardship early release regime may represent the thin end of a wedge for the Government’s long-term policy approach to superannuation.