Government has now turned its attention to what Minister Jane Hume described at Investment Magazine’s Retirement Conference in Canberra in mid-June in front of a closed room with government representatives, agencies and leaders of the industry’s 13 largest funds as the “great unfinished business of superannuation”.
The ink on the historic Your Future, Your Super amendment Bill barely had time to dry when Minister Hume and opposition party leader Stephen Jones MP stood before the industry’s largest funds to outline the next significant legislative milestone – the Retirement Income Covenant, due to come into effect in July next year.
Now in its 8th year , the Retirement Conference took on a United Nations-style format in which CEOs, CIOs chairs and heads of strategy and retirement divisions along with a handful of service providers, regulators and policy makers spent the day discussing their respective approaches to developing product, frameworks and policy to address the introduction of the as yet undefined Retirement Income Covenant.
In coming months the superannuation industry will learn more about the scope and nature of the principles-based legislation that will push funds to develop retirement strategies and provide guidance to make the most of their members’ accumulated savings over the course of their retirement, Hume said during an address and Q&A.
“Trustees should be thinking about how they assist their member balances and other important considerations in retirement including how they convert their savings to a retirement income including interactions with the age pension and also consider risks to income sustainability and finally how to have some flexibility to access to savings,” Hume explained, summarising the intent of the RIC.
Providing further clues into the government’s thinking on the composition and direction of the RIC, Hume emphasised the importance for funds to give member options but for those options to not take control out of retirees’ hands.
“It is not about forcing retirees – current or future – to draw down on savings through rigid policy settings or punitive regimes that restrict their choice and agency, quite the opposite. It’s about giving retirees control of their retirement income no matter what their economic circumstances,” Hume said, noting the system needed to draw on all three pillars of retirement savings including superannuation, the pension and savings outside of super.
“No discussion is complete without the discussion of homeownership and to date I am not aware of any trustee integrating housing equity into retirement income, but housing equity is important, particularly for those who haven’t benefited from the mature super system,” Hume said, highlighting changes the government made to the pension loan scheme to allow individuals to supplement income in retirement by borrowing equity against their property among other changes the government made to bring more flexibility to the system.
“The RIR [Retirement Income Review] found the system is too rigid and is guilty of anachronisms that prevent a flexible response to the needs of individual Australians.
“We’ll be looking to trustees to develop income strategies Australians can rely on over the course of retirement, effectively smoothing consumption over the course of retirement while balancing withdrawal and investment earnings,” she said.
Australian Labor Party leader Stephen Jones MP (pictured, inset) spent his time talking about the challenges in the system relating to guidance and advice and the importance of advice in the retirement stage.
“The great problem we’ve got is that never have Australians been retiring with more wealth and never have they had greater need for professional advice that is 100 per cent focused on the interests of the person who is receiving the advice and not on the remuneration model that is attached to the product being sold.
“Never has there been a greater need for that but never has it been more difficult for middle income earners and lower income earner to afford advice and we desperately need to address that.
“The business model for advice is broken. It’s never going back together again the way it was. The other model before Hayne was just product sales dressed up as advice and that’s not coming back,” Jones said.
“We have to be careful we don’t recreate a model in seeking to provide advice that was generally available. So we need, not just one model but many models of advice, which provides access to advice at particular times they need it,” Jones said.
Hume concluded her remarks to the room of superannuation executives, regulators and policy makers highlighting the importance of data and the need for the industry to better understand its member base.
“The covenant will only work if trustees get to know their membership base and the diverse situations of their member cohorts creating tailored strategies for their needs, giving their money back thoughtfully when it’s time to do so,” she said.