Retirement income covenant to force Aussies to spend their super

The government's Retirement Income Covenant aims to promote retirees spending their superannuation savings, but the new plan excludes those who have self-managed super funds (SMSFs). 

The new law from 1 July next year would require super funds to include an income and spending strategy for beneficiaries to maximise their super spending in retirement. 

The retirement income strategy would provide assistance to members with managing their spending in retirement and combat the issue of retirees not spending their wealth. 

Superannuation Minister Jane Hume said that the reforms would improve the retirement income system. 

"The draft legislation would codify the obligation for superannuation trustees to have a retirement income strategy that outlines how they plan to assist their members in retirement," Ms Hume said.

"The strategy must consider how the trustee will assist their members to balance maximising their retirement income, managing risks, and have some flexible access to savings."

In July, Savings.com.au spoke to National Seniors Australia chief advocate Ian Henschke, who was sceptical about the Retirement Income Covenant's findings that retirees died holding on to most of their wealth.

He said that the priority should be to talk to older Australians to find out why they may be conservative with their savings. 

"We know that many of our members are worried about health and aged care costs," Mr Henschke told Savings.com.au.

"We found that they are holding money for home care, and to care for their partner - their spouse."

So why aren't SMSFs included in the proposal?

The latest Retirement Income Covenant update released Monday makes trustees of SMSFs exempt from the new spending strategy requirements.

The inclusion of SMSFs in the initial plan raised questions as to how this benefited SMSFs and some experts believed that it simply was more red tape for SMSF trustees.

There was also the question as to how SMSFs with multiple members would be impacted by how much they could spread the assets of their fund.  

SMSF trustees are required to annually update their investment strategy, which is a written document overseen by an auditor.

Self-managed super has been on the rise in Australia in recent years, accounting for 25.11% of assets in the Australian pension industry according to the ATO.

As of June this year, the SMSF sector includes $822 billion worth of assets, rising from $60.9 billion in 2000. 

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