When ‘tailored guidance or advice’ is not personal advice

Superannuation funds are going to have to meet the requirements of the Government’s proposed new retirement income covenant by assessing the retirement needs of their members without actually stepping into the realm of financial advice.

And they are going to have to navigate the narrow divide between the retirement incomes covenant and personal financial advice notwithstanding the fact that the Government will allow them to consider information about “whether beneficiaries are likely to have assets in other funds, other pensions or non-superannuation assets”.

That is the clear bottom line of the explanatory materials around the exposure draft of the legislation released by the Government yesterday, which at the same time as stating that superannuation funds are not precluded from assisting their members to meet their individual needs through “tailored guidance or advice” also states they should not be providing “personal advice”.

“It is expected that trustees will consider the broad needs of the beneficiaries covered by the strategy to determine what assistance may best meet those needs. This does not preclude the trustee from assisting their members to meet their individual needs through tailored guidance or advice,” the legislation’s explanatory statement says.

However, it then says that “trustees must operate within the existing financial advice framework. Trustees can fulfill the requirements of the covenant and create effective retirement income strategies without providing personal advice”.

“The retirement income strategy is to express the general actions the trustee will take to assist their members to balance key retirement income objectives. It also does not need to consider the specific circumstances of individual members.”

The explanatory statement argues that “collecting information on beneficiaries in and of itself would not result in the provision of personal advice (which relates to making statements of opinion or recommendations about financial products)”.

The explanatory material also says that the retirement income strategy will have to be provided to members in writing with “each determination made by the trustee for the purposes of the strategy and the reasons for the determinations”.

Outlining the role of superannuation funds in delivering on the retirement income covenant the explanatory materials stated: “Trustees are expected to consider situations where it is anticipated that beneficiaries will need access to funds over retirement. Trustees may wish to consider the life stage of beneficiaries and likely consumption needs. It would be prudent for a trustee to consider financial and in-kind support offered by state/territory and federal governments to offset health and aged care when determining the needs of beneficiaries to have flexible access to expected funds”.