Retirement Income Covenant: A Long-Awaited Promise for Financial Security In Retirement

Retirement Income CovenantHelping members achieve their retirement income objectives should be the collective ‘why’ for all Australian superannuation funds.

Now, more than three years since the Retirement Income Covenant was floated in the 2018 Federal Budget, the Government has released a Retirement Income Covenant Position Paper (Position Paper) to help funds better determine ‘how’ to make this happen from 1 July 2022.

Why Do We Need a Retirement Income Covenant?

The Government has disappointingly acknowledged what many industry experts having been saying all along – the only way that superannuation fund trustees will formulate adequate retirement income strategies for their members is to legislate.

Nearly three decades after the introduction of compulsory superannuation, and Australians diligently saving an increasing proportion of their salaries, the Position Paper concludes that “most retirees are not currently supported to effectively manage their superannuation when they retire.”“Providing income in retirement is the fundamental role of compulsory superannuation.”

The truth is that superannuation funds need to better support their members throughout their lifetime, not just leading up to the point of retirement. Furthermore, the right solution to balance key retirement income objectives would differ for each individual member.

Supporting Members with Appropriate Guidance

Prior to the Retirement Income Covenant coming into effect in 2022, funds will need to reconsider how they assist their members transitioning to retirement. As Trustees develop and implement their retirement income strategies, the advice and process of how they help their members, providing ‘appropriate guidance’ will evolve from today’s offerings.

The time has come to define what ‘guidance’ means in the context of retirement planning and to clarify the line between guidance and the provision of financial advice to members. Walking the tightrope between education and financial advice causes superannuation funds considerable angst as they ensure compliance with regulatory requirements.

The Federal Government has flagged that it will ask Treasury to investigate the quality and affordability of financial advice in 2022 and we hope that the Government might use this review to address some of these challenges.

It is a concern that the current level of ambiguity and complexity will continue if ASIC doesn’t rethink how it differentiates between personal financial advice and other forms of information and assistance. In the end, members will be no better off than they are now.

Data Overload and Technology Requirements

Another major concern is that in order to implement a retirement income strategy envisioned by the Position Paper, funds will need (even) more member data to offer appropriate retirement products and ensure members are making better retirement decisions. The current approach of one product for the average member will not do.

Building a retirement strategy based on averages is like building a door high enough for a person of average height. Unfortunately, half of the people walking through that door will have to duck to avoid a bump on the head!

The fact is that collecting, organising, and using the data for informed decision making might not even be possible within existing frameworks. The Position Paper expects trustees to consider what data they may need to develop their retirement income strategy – but do trustees know what is needed, how to get it and what to do with it once they have it?

Funds need to know more about their members. Diagram.

Additional data requirements will be a challenge for trustees, but it is necessary to determine the most appropriate strategy for members. An example is the member’s Age Pension eligibility. The fund would need to know of any other income and assets a person (and spouse) may have, the age of the spouse and their status as homeowners or renters.

If funds are successful in obtaining the data, the next question is how this can be stored to link it to the member and allow for easy analysis. Will there be a unified process and guidelines to collect and apply the data findings across all members? Can this be processed by the current legacy administration systems, or will it accelerate the current trend of funds building their own data platforms – and a whole new set of technology requirements that will delay effective and timely implementation.

Given these issues, it is  important that trustees give consideration to developing a flexible solution to offer to their members than just settling for an average solution.

 It Is Never Too Late

There is much for Trustees to consider when developing their retirement income strategy for members nearing the end of their accumulation years and approaching retirement, but as Australia’s significant baby boomer generation transitions into retirement, is the Retirement Income Covenant a promise too late?

The Australian Superannuation Industry must act now to make the promise of a comfortable retirement a reality for all Australians.

Optimum Pensions supports the Government’s introduction of the Retirement Income Covenant and believes this will assist superannuation funds to develop or utilise better retirement solutions for their members.


Optimum Pensions was launched in 2017 with a single mission – to help Australians lead a comfortable retirement. The Optimum Pensions innovative retirement income solutions are specifically developed to address longevity risk and provide greater peace of mind for all retirees; no matter how long they live.

The Optimum Pensions, award-winning LifeSpan Calculator builds confidence around personal life expectancy and retirees’ possible retirement planning horizon.

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