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The contradictions of the government’s new approach to retirement

By Sarah Kendell
4 minute read

The government’s new approach to the Retirement Income Covenant might be all about providing trustees flexibility to tailor products to member needs, but its position paper doesn’t give many clues on how they will discover what those needs are without straying onto shaky legal ground.

The consultation paper, released earlier in the month, lays out the government’s thinking around the forthcoming Retirement Income Covenant framework, which is due to come into force in July 2022.

The paper says as part of the framework, trustees will be required to “consider the broad needs of their members and what actions the trustee needs to take to assist their members meet those needs” as part of developing a formal retirement income strategy for their fund.

“It is anticipated that the requirement to develop a retirement income strategy will result in many trustees evaluating the products they offer to their members and investigating whether their product offerings can be improved to better meet the needs of their members,” the paper states.


With retirement income products also falling under the government’s 2019 Member Outcomes Bill passed as part of its response to the royal commission, the paper said the government would take an active role in “ensuring the design [of the covenant] supports measuring and comparing how retirement products deliver retirement outcomes”.

However, the paper is clear in its statement that the covenant should not involve pushing members towards a particular product or pushing them towards advice so funds can find out more about their situation and needs.

“Through the requirement to develop a retirement income strategy, trustees will be required to consider the broad needs of their members and identify what actions the trustee needs to take to assist their members meet those needs,” the paper states. 

“This includes consideration of what guidance trustees may need to provide to their members in implementing a fund’s retirement income strategy. 

“Guidance in this context does not mean defaulting members into particular products or pushing people towards particular forms of advice. Further, guidance should not create competitive distortions in adjacent markets for financial advice.”

The news comes following recent comments from former ASIC executive Pamela Hanrahan that the government’s interpretation of the covenant would be almost impossible to implement under the current regulatory framework for financial services.

“We’re trying to work out how you can efficiently deliver the choice support to a majority of people, and I think it’s time for us to have a strategy that says we’ve tried for 20 years to provide this in the framework of Chapter 7, so maybe we need to have a process where it doesn’t require the level of regulation we’ve had,” Ms Hanrahan said in a recent industry webinar.

The paper states that the government is “aware there are concerns regarding current laws and regulations governing guidance”.

“The Treasury will conduct a Quality of Advice Review in 2022, as recommended by the financial services royal commission,” the paper states.

“The review will consider the full breadth of issues impacting on both quality and affordability of all forms of financial advice, including advice for retirement. This will inform future policy development.”

With trustees needing to lay out in the proposed retirement income strategy model how they will maximise members’ income, manage risks to their income and provide flexible access to savings, while managing these competing priorities, it’s hoped the Quality of Advice review will be conducted in time to provide more clarity around how the government’s requirements and the complex financial services regulatory ecosystem interact.