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Puzzle pieces with open space for rules and green piece for rewrite

Will retirement income covenant force advice regulation rewrite?

By Mike Taylor20 October 2021

Australia’s largest superannuation industry lobby group has reinforced just how important financial advice will be to delivering on a retirement income covenant and has suggested that regulatory reform may be needed around scaled advice and intrafund advice.

What is more the Treasury has been told superannuation funds will simply not have available to them the level of detail necessary to give members effective guidance with respect to retirement income strategies.

The Association of Superannuation Funds of Australia (ASFA) has made clear that it believes that the provision of financial advice needs to be integral to the operation of the retirement income covenant and that the provision of ‘general’ advice will not be sufficient.

“Given the complexities involved in planning for retirement, ideally a member should have access to personal financial advice,” it said.

“Access to affordable advice has the potential to significantly improve a member’s income in retirement. Scaled advice – including intra-fund advice – could play a role with respect to assisting members approaching and in retirement, however, there would need to be regulatory reform.”

It suggested that, on this basis, the upcoming Treasury Quality of Advice Review should examine the potential role the provision of scaled and intra-fund advice could play with respect to retirement income.

“In order to improve members’ income in retirement, it is imperative that the issues surrounding the provision of guidance and advice be addressed,” it said, noting that “the main barrier to providing appropriate guidance and assistance to members are the current requirements and obligations surrounding the provision of ‘personal financial advice’”.

“For any guidance to be useful it needs to take into consideration the member’s objectives, financial situation or needs. In so doing this means that any such guidance is at risk of being considered to be personal financial advice, including circumstances where a reasonable person may expect the guidance to have considered one or more of these things, even if it has not done so.”

“Any general financial advice or factual information given to a member is unable to consider the member’s financial situation, need or objectives. This significantly limits the kind of guidance that can be provided to members and how useful it is to them when they are determining their own retirement income strategy.”

“When it comes to reviewing the outcomes of the retirement income strategy, in circumstances where it includes directing members to products or guidance materials offered by third-party providers or Government, the trustee may not be in a position to assess how effective this assistance has been,” it said.

“Further, as the trustee will not know most of the matters which will have driven members’ decisions with respect to their retirement income (such as other super balances; Age Pension eligibility, partnership status and home ownership status), it will be difficult to determine the outcomes of the retirement income strategy,” the submission said.

“By way of example, for a number of members, after careful consideration, an account-based income stream may remain a valid choice – this would not mean the retirement income strategy has not been successful.”

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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