You cannot be serious

The month of December is upon us and that means 2023 is nearly done and dusted. And it’s been a busy year of change and proposed change for the superannuation industry and I think it’s safe to say it really hasn’t been great for the SMSF sector.

So many government measures have been skewed against it with the $3 million soft cap and the final non-arm’s-length expenditure (NALE) rules being glaring examples.

And just when you thought it was all over and we could take a collective step back and regroup for 2024, the government makes another announcement looking like it will have a negative impact on SMSFs.

I’m referring to the discussion paper aimed at improving the retirement phase of superannuation. In short, Financial Services Minister Stephen Jones is looking to have the Retirement Income Covenant apply to SMSFs. To use an iconic phrase from tennis great John McEnroe: “You cannot be serious.”

No doubt the purpose of this discussion paper is to further light a fuse under the backsides of the industry super funds that, despite over a decade of discussions about the generational shift happening among the Australian population, have still failed to develop adequate retirement income solutions for their members in retirement phase.

In fact, if the minister performed a bit of due diligence on the topic, he would see this is the main reason why industry funds lose members with the highest balances. And what do a lot of these individuals end up doing? Establish an SMSF to create their own retirement income solution.

Often the solution comes in the form of implementing one or more account-based pensions and judging by the results of superannuation fund satisfaction, as measured by research house Roy Morgan, it seems to be working as SMSFs consistently come out on top. To me it would suggest SMSFs are the gold standard with regard to the retirement savings drawdown phase.

But according to the government, the fact 84 per cent of retirement savings are held in either an account-based pension or allocated pension, with only 3.5 per cent in annuities, presents a problem. This means it would like more superannuants to use annuities, in particular SMSF members, and so will seek to include the sector in the Retirement Income Covenant. Really?

It begs the question whether Jones understands the characteristics of an annuity and how they actually work. While they can provide a guaranteed income stream, they are considered expensive and any remaining monies in the annuity pool cannot be retrieved once the individual in question dies.

Compare this with an account-based pension that can be reverted to another fund member in the event of death. Which would you say is more equitable and flexible?

So it appears the government is wanting to push a greater number of SMSF trustees into products that are more expensive and less efficient and along the way further restricting the very freedom of choice these funds offer –exactly what people love about them.

If we compare this approach with how the NALE rules are to be implemented, it almost appears a carve-out is okay when it is for the industry funds, but a carve-out for SMSFs is totally unacceptable.

A note to the minister: rather than penalise SMSFs with an imposition that makes no sense, learn from them and see how more of their retirement income solutions can work for the greater part of the superannuation industry.

From the editor - Darin Tyson-Chan

INAUGURAL SMSF ASSOCIATION TRADE MEDIA JOURNALIST OF THE YEAR