The 2022 superannuation change that can help you retire more comfortably
Working hard for your money now should reward you down the line. New rules for super funds could see to that.
After spending years building up your superannuation account, you could face the dilemma of what to do with this nest egg when you retire.
It's a question many Australians face when they reach retirement age and leave the workforce but the answers aren't always clear.
That's one of the major reasons for the Australian government's 2021 legislation that super funds need to develop strategies to address the broad retirement needs of their members.
You work hard for your money over the course of your life. It should work for you in retirement.
Now, super funds must have strategies that balance the objectives of maximising income, managing risks and having flexible access to funds in retirement.
This legislation, known as the retirement income covenant (RIC), came into effect on 1 July 2022 with a mandate that super funds must develop flexible strategies for members to maximise retirement income and allow access to funds.
I've worked in the superannuation industry for a long time and this change is significant for all Australians. If you're planning to retire soon, here's what it means for you.
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How are super funds changing focus?
Up until now, super funds focused on the "super" stage, which is about accumulating the highest balance possible so you have money in retirement.
It's easy to be disengaged in this process, especially when retirement can feel like it's far in the future.
In retirement, superannuation funds are focused on how people spend their savings. As well as everyday costs, there are various unknowns such as your health, life expectancy and the possibility of living beyond the savings you have in your super fund.
When you retire, you have 2 choices:
- Leave the money in the super system by rolling it over into an income stream (like an account-based pension)
- Withdraw the money
This stage is usually when people become more engaged with superannuation as you need to understand how your retirement savings plus government entitlements and other assets can cover life's expenses.
Read our retirement guide to get tips on planning your income in retirement.
How exactly will the new legislation help Aussies with their retirement?
The RIC legislation means the trustees of superannuation funds need to implement a framework and strategy to ensure they understand your needs as a member. They also need to create solutions in line with those needs.
It states that the strategy needs to address both the planning and retirement needs of members. Super fund trustees also need to better understand their members' financial position.
This is a significant change as the information held by super funds about their members has historically been limited to their account balance, contribution history and personal details.
Understanding what other assets you have, including other super accounts and non-super assets (such as the family home, shares and other investments), is critical to building an assessment of what support or other solutions are required to be made available by the trustee to maximise your retirement income.
This coincides with the need to ensure compliance with the personal advice rules and how this can be achieved without the need for comprehensive advice.
Super funds are now busy assessing their priority initiatives, which will be determined by membership demographics.
The focus for the majority of funds has been to ensure compliance with the new covenant requirements, which include the development of a framework or strategy and publication of a summary on their website.
These summaries can be a way for you to see what your own super fund is doing and compare it to others based on what's important to you in retirement.
Compare super funds to ensure your money is working hard for your retirement.
Better support in retirement
If you're planning for retirement or have already retired, the RIC is an exciting change that will lead to additional services and solutions over the next few years.
As there will be more resources allocated to understanding member needs, preferences and concerns, this should drive the evolution of support, services and solutions.
Put simply, if you're not sure what to do with your superannuation or have questions about it in retirement, the answers should be clearer and more helpful.
Given that these requirements are new and regulations are not specific in what has to be done, there will be significant variations in how different trustees approach this need.
This makes it important to spend time comparing the retirement stage solutions on offer to ensure your needs are being met and, where appropriate, move to the right fund and the right products for you.
Mark Spring is the head of strategic implementation at Active Super. He has over 25 years of experience working in financial services, including over 8 years at NAB and with financial institutions such as Legg Mason (now Franklin Templeton Investments), Citigroup and Salomon Smith Barney. He is a chartered accountant and began his career at PricewaterhouseCoopers before moving into the asset management industry.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and
