The Government committed in the 2018-19 Budget to introducing a retirement income covenant for superannuation trustees and consulted on the covenant in June 2018. Treasury released a position paper on 19 July 2021 that reflects the feedback from that consultation process and presents the Government’s refined policy, with the aim of guiding trustees ahead of the covenant being legislated and taking effect from 1 July 2022.

The retirement income covenant will be additional to the existing investment strategy covenant in the SIS Act and will outline a fundamental obligation of trustees to formulate, review regularly and give effect to a retirement income strategy.

The position paper proposes that framing superannuation as a ‘nest egg’ has compounded the complexities around deciding how an individual manages superannuation in retirement. This is partly due to individuals being primed to save as large a lump sum as possible and consequently when retired, struggling with the concept that superannuation is to be consumed to fund retirement. The leads to a substantial portion of individual’s retirement savings remaining unspent and becoming part of a  bequest when they die – up to 90% of assets that were held at retirement. This lower consumption of super during retirement lowers living standards. Individuals could have a higher standard of living in retirement if they had greater confidence to spend their superannuation.

The objective of a retirement income covenant is to improve these mechanisms by creating an obligation for superannuation trustees to assist members to meet key retirement income goals.

The proposed requirement for superannuation trustees to develop a retirement income strategy for the members of their fund who are retired or approaching retirement will apply to all superannuation fund trustees, including trustees of self-managed superannuation funds (SMSFs). From 1 July 2022, all SMSFs with retired members should have a retirement income strategy. Where all of the SMSF members are in the accumulation phase, trustees will have discretion as to when they require a retirement income strategy, in so far as members of the SMSF are ‘approaching retirement’.

The strategy should set out the trustee’s plan to assist its members to achieve and balance 3 objectives:

  1. Maximise retirement income over members’ whole of their retirement;
  2. Manage risks to the sustainability and stability of retirement income; and
  3. Allow some flexible access to retirement savings.


In assessing these objectives, trustees will be required to consider members’ age pension entitlements and tax obligations. As most readers will appreciate, projecting retirement incomes, over uncertain lifespans while allowing for the age pension, tax and volatile markets is not a straightforward proposition for SMSF trustees. Such retirement income strategies will be personalised to each member rather than template documents. This could present a real opportunity for SMSF practitioners to engage with their clients and help them develop a valuable plan for generating a sustainable income in retirement.

You can access the full Retirement income covenant position paper from Treasury’s website or simply click here.

Comments on the position paper can be made to Treasury by no later than 6 August 2021.

Please note that this is simply a position paper and is yet to be put into the form of draft legislation that then requires passage through both houses of Parliament, before becoming law. As noted, the Government’s intention is for the retirement income covenant to become law, with effect from 1 July 2022, giving under a year to when SMSF trustees will be required to comply.

As the proposal for a retirement income covenant develops, Accurium will be developing tools and resources to help SMSF practitioners, and their clients meet this new obligation to formulate, review regularly and give effect to a retirement income strategy. Stay tuned for news on the progress of this position paper through to legislation, as well as new Accurium tools and resources.

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