The Retirement Income Covenant is on track to start on 1 July this year, after Parliament passed a bill that wrote the covenant into legislation.
The Retirement Income Covenant is on track to start on 1 July this year, after Parliament passed the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 yesterday, writing the covenant into legislation.
The new covenant will require trustees to develop a strategic document outlining their plan to assist members to maximise their retirement income, manage risks to the sustainability and stability of their retirement income and have some flexible access to savings during retirement.
The Association of Superannuation Funds of Australia (ASFA) welcomed the passage of the bill.
“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,” Martin Fahy, Chief Executive Officer (CEO) of ASFA, said in a media statement.
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 – Martin Fahy, ASFA
“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,” he said.
The $155 billion Aware Super is among the super funds with the largest proportion of members in the retirement phase, managing $30 billion in retirement assets.
The reforms would help ensure super funds prioritise the needs of all their members, not only those saving and preparing for retirement but also those already in retirement, Deanne Stewart, CEO of the fund, said.
“This law makes it explicit that funds need to give the same attention to the retirement phase as they do to the accumulation phase, and ensure members get the best possible outcomes right throughout their lives,” Stewart said.
“The whole point of the superannuation system is to help Australians retire with dignity – to help them have their best possible retirement. The retirement phase is fundamental to the system, yet for a long time, in parts of the sector, it has been something of an afterthought.
“It’s incumbent on every super fund to give the retirement phase the attention it deserves, and to prioritise retirement income strategies. We’re pleased to see this imperative enshrined in law,” she said.
Minimum Threshold
At the same time, the Government also removed the much vexed threshold of $450 in monthly wages to be eligible for superannuation contributions. Critics of the threshold viewed it as disproportionately affecting low income earners and women.
Super fund HESTA, whose membership consists predominantly of women, has campaigned for a long time to get rid of the threshold and Debby Blakey, the fund’s CEO, was glad to see the back of it.
“The requirement to earn $450 per month with one employer before you get paid super has compounded financial insecurity for casual and part-time workers, who often have lower pay and are in insecure or precarious work,” Blakey said.
“More than 80 per cent of our members are women. Women are more likely to work in multiple part-time or casual roles with different employers. The result is that they can totally miss out on the benefits of super, which leaves them more vulnerable to poverty as they age.
“Super is for all Australians and ending this outdated measure helps make our super system fairer for women and those on lower wages,” she said.
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