What you will be getting?
Don’t you just hate jargon? And when it comes to finance there is a lot of it about. Take the recently legislated Retirement Income Covenant (RIC), known as the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022.
Whoa! Stop right there, you may think.
But it’s actually a new law which means you deserve and should get more support to manage your money in retirement.
Here’s how it works.
This legislation has been planned for a decade or more, but it was delayed in order to incorporate findings from the Federal Government’s Retirement Income Review (RIR), which reported in 2020.
The new laws came into effect on 1 July this year. Basically, it requires the trustees of super funds to take responsibility for helping members during their transition from employment to retirement and beyond.
The intention, as highlighted in the RIR, is that retirees need more confidence to spend more of their savings in the retirement phase of their superannuation. Superannuation trustees are now required have a strategy to help members approaching or in retirement to:
- maximise their retirement income (taking into account the Age Pension and any other relevant income support payments)
- manage the risks to the sustainability and stability of their retirement income, including the risk of outliving savings and investment risks
- have some flexible access to savings during retirement (including meeting unexpected expenses or high cost items)
In plain English, this is requiring most super funds to help people with the decumulation or withdrawal phase of super – i.e. getting your funds out to support you in retirement.
In essence, it is a practical requirement to assist members in the second part of their superannuation journey – when they need to support themselves with these savings or use them to supplement other forms of income, including the Age Pension.
It is also fair to note that the Australian Government, of course, has a vested interest in retirees saving more, as self-supporting retirees will ultimately cost less in welfare expenditure.
Another helpful aspect of the new law is the clear distinction between maximising retirement income and managing risks to its sustainability and stability. They are not the same thing.
How does this affect you?
This, as always, depends upon your particular situation e.g.
- You don’t have a super account or
- You are still building up (accumulating) your super or
- You have started to withdraw (spend) your super, perhaps using an Account Based Pension (ABP) to do so.
Regardless of whichever is your situation, this new law offers a useful framework, or filter, with which you can review your current or potential retirement income.
Any information on retirement income from a reliable source is good to add to your general understanding of how to maximise your retirement wealth. So all information or guidance your super fund offers is definitely worth looking at.
But after viewing such information, you will still need to make decisions on how you wish to use such guidance. You are still in the driver’s seat and it’s important that you don’t just sit there!
As we have discussed previously, retirement income is never a set and forget proposition. You need to do some long-term planning and then review it frequently (at least annually) to check it is still meeting your needs and achieving your goals.
So whether you are a member of a super fund, or have no access at all, the three key requirements of the Retirement Income Covenant are the ones that can guide you to question your current settings and make changes if necessary.
Here’s some aspects of these requirements that you may wish to consider:
Maximise your retirement income
If you are on an Age Pension you should be keeping a close eye on your assets and income recorded with Centrelink – even slight changes to these settings can mean extra income. You also need to know the rules and how they affect you – we share this information every week so you can stay up to date. And if you are not eligible, you can keep an eye on thresholds to ensure you apply as soon as you get close. If you believe you will always be self-funded you can still check your (soon to be expanded) entitlement to a Commonwealth Seniors Health Card (CSHC).
Manage the risks to the sustainability and stability of your retirement income
The Age Pension is a Government guaranteed, secure form of income. Super savings can be more volatile, but invested carefully, over the long term will increase. Managing your approach to risk is covered in a separate article today – we have covered this in some depth as we think the ability to sleep at night is one of most retirees’ top priorities.
Retain some flexible access to savings during retirement
With the majority of Australian retirees on a full or part Age Pension (67%), maintaining some flexible access to savings normally involves the way you can use any super or private savings as top ups to regular income, or as emergency or luxury money. This scenario can vary a lot from retiree to retiree and getting the levers right as you approach preservation age is the biggest favour you can do yourself. There are no easy answers here but ‘in real time’ scenario planning is very helpful, particularly using online calculators. The Retirement Essentials Retirement Forecasting Calculator is a great tool that can be shared in a one-on-one consultation with one of our experienced advisers. Most of our members report feeling much better after viewing their likely income trajectory.