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Retirement income covenant position paper released
The Federal Government has released its Retirement Income Covenant position paper that outlines what the Government expects a retirement income covenant to look like.
The Government committed to a retirement income covenant for superannuation trustees in the 2018–19 Budget and intends for it to take effect on 1 July 2022.
“The covenant will codify the requirements and obligations for superannuation trustees to improve retirement outcomes for individuals, while enabling choice and competition in the retirement phase,” the paper states.
The Government is concerned that retirees are attempting to live off the income of their superannuation investments and are not using their capital, citing Retirement Income Review (2020) findings that many retirees die with a majority of the assets they had at retirement.
The Superannuation Industry (Supervision) Act 1993 currently includes requirements for trustees to formulate, regularly review and give effect to investment, risk management and insurance strategies. And the Government wants to add a retirement income covenant to the Act outlining a fundamental obligation of trustees to formulate, regularly review and give effect to a retirement income strategy.
Trustees of all superannuation funds (including self-managed superannuation funds) will be required to develop a strategic document that outlines their plans to assist their members to “achieve and balance the following objectives: maximise their retirement income; manage risks to the sustainability and stability of their retirement income; and have some flexible access to savings during retirement”.
Latest Superannuation Inquiry is “political theatre”: ASFA
The Association of Superannuation Funds of Australia (ASFA) has slammed the latest inquiry into the superannuation sector as an “act of political theatre”.
In late July, the House of Representatives Standing Committee on Economics announced the Inquiry into the implications of common ownership on Australia’s legal framework and consumer harm, to be chaired by Tim Wilson. This will be the 13th comprehensive inquiry into the superannuation sector in the last decade.
“As investors acting in the best financial interests of their members, superannuation funds are proactive in holding corporate Australia to account and in ensuring strong and effective governance,” ASFA chief executive officer Martin Fahy said.
“This inquiry flies in the face of the international experience and appears to advocate for a bygone era in which executives were free to run the firm in their interests rather than in the wider stakeholder interests of customers, employees, and indeed the superannuants that are invested in them.”
The Inquiry is tasked with looking into the extent of capital concentration and common ownership of public companies and the potential influence of capital concentration and common ownership on markets.
Retail investors flock to sustainable strategies
Sustainable investing continues to be very popular among investors, according to the latest Morningstar Sustainable Investing Landscape for Australian Fund Investors report for the second quarter of 2021.
Morningstar says that retail assets invested in Australasian sustainable funds were a record $33.4 billion at the end of the second quarter, which was a 66% increase on the same period last year and an 18% increase on the first quarter.
“The Australian sustainable funds market remains quite concentrated, with the top 20 funds accounting for 58% of total assets in the sustainable fund universe,” Morningstar says.
Australian Ethical and Vanguard are the dominant providers and each have a market share of approximately 20%.
Inflows over the past 12 months were mostly in active strategies – at $4.8 billion, compared to inflows into passive strategies of $2.5 billion.
Superhero launches new super fund
Share trading App Superhero has launched a new superannuation fund that will enable members to directly invest their superannuation in the top 300 ASX-listed shares, exchange traded funds or in a range of professionally managed index, sector and themed portfolios.
Superhero Super is designed to provide members the flexibility of a self-managed superannuation fund (SMSF) without the costs or barriers to entry.
“It’s clear that Australians want transparency and they want control over how their superannuation is invested,” Superhero co-founder and chief executive officer, John Winters, said.
“We have built a super fund that offers true engagement, offering members greater control over how their hard-earned money is invested.”
Superhero Super offers two account types – Control and Autopilot.
Members in the Control option can invest up to 75% of their super in ASX 300 shares and ETFs. A minimum of 25% needs to be left in a global diversified index fund for a minimum level of diversification. This option charges an administration fee of $2 per week plus 0.49% per annum.
Autopilot members can allocate up to 30% to a range of themed investments across tech, global healthcare or sustainability, with future contributions automatically invested in their chosen option. The balance is also invested in a global diversified index fund and this option has an administration fee of $1 per week plus 0.49% per annum.
SMSFs most satisfied superannuation fund members
Self-managed superannuation trustees had the highest satisfaction ratings out of all superannuation fund members (80.6%) for the six months to June 2021, according to the latest Roy Morgan Superannuation Satisfaction Report.
The overall superannuation fund satisfaction rating was 71.7% in June 2021, which was an 8.6 percentage point increase on satisfaction levels 12 months ago and a 6.9 percentage point increase on the last six months to December 2020.
Public sector superannuation funds had a satisfaction rating of 79.7% and industry funds had a rating of 72.3%. Retail funds had the lowest satisfaction rating at 67.8%, but even that was a 9.7 percentage point increase on the previous June.
“The driver of the increase has been the performance of the ASX 200, which bottomed at 4,546 in March 2020 before increasing by 1,351.9 points (29.7%) to 5,897.9 by 30 June 2020. Over the last year the ASX 200 increased an additional 1,488.3 points (25.2%) to hit a record high of 7,386.2 in mid-June,” Roy Morgan CEO Michele Levine said.
Australians engaged with superannuation
Australians are relatively engaged with their superannuation and most are aware of major changes to legislation, including the increase in the Superannuation Guarantee (SG) from 1 July, according to a survey of 2000 employed Australians in early July by Colonial First State.
Seventy per cent of those surveyed were aware that the SG increased from 9.5% to 10% from 1 July. However, just 45% knew about the increase in the annual concessional contribution caps from $25,000 to $27,500.
Even so, the majority (66%) were positive about the changes to the SG and concessional contribution caps. However, one in four are considering a delay to their retirement because of uncertainty caused by COVID-19.
“More than a year on, the COVID-19 continues to cause financial uncertainty in the lives of many Australians. As a result, people are looking more closely at their finances – including their retirement savings,” CFS Superannuation chief executive officer Kelly Power said.
“It’s encouraging to see that Australians increasingly recognise the importance of super as a savings vehicle for retirement and are showing higher levels of engagement, but there is still room for improvement.”