The SMSF Association has thrown its in principle support behind the Government’s decision to remove SMSFs from the legislative requirement for trustees to develop a retirement income strategy for fund members.
Commenting on the release of the draft legislation that will introduce a requirement for APRA regulated fund trustees to develop a retirement income strategy for members who are retired or approaching retirement, SMSF Association CEO John Maroney says the Association had raised concerns about the additional cost, red tape, and unintended consequences arising from a requirement for SMSF trustees to formulate a retirement income strategy for members when the trustees and members are typically one and the same.
However, Mr Maroney cautioned the sector on the perils of not properly addressing the expected risks associated with maximising a member’s expected retirement income.
“Just because the law doesn’t require you to have a retirement income strategy, doesn’t mean you shouldn’t have one.
“It’s not a green light for SMSF trustees to ignore the spirit of a retirement income covenant, as we know from bitter experience that failure to properly address these issues can derail even the best laid retirement income plans.
“It is still important for SMSF trustees to ensure members are covered by a strategy that balances the objectives of maximising a member’s expected retirement income, managing the expected risks and providing flexibility to access capital required during retirement.
“However, codifying it in the law that SMSF trustees, who are usually also the members, must do so would impose an additional compliance burden on SMSF trustees and SMSF auditors when there is a strong incentive for SMSF trustees to look after their own best interests.”
Mr Maroney says: “The exposure draft legislation, by outlining the different matters and risks that APRA regulated fund trustees should address in relation to maximising the expected retirement income of members, can act as a useful action plan or blueprint for SMSF trustees.
“It also highlights the importance of specialist SMSF advice to assist SMSF trustees identify and mitigate these risks as well as addressing specific SMSF issues such as planning for loss of capacity, ensuring there are valid enduring powers of attorney in place, and assessing the ongoing suitability and viability of an SMSF.”
Maroney says that the Association is gratified that its submission to Federal Treasury’s Retirement Income Covenant Paper, which highlighted some of the inconsistencies and unintended consequences that could have arisen if this new requirement had applied to SMSFs, has been recognised by the Government in this exposure draft legislation.