RIC exemptions not reason for SMSFs to ignore law

Self-managed super funds (SMSF) not being required to develop a retirement income strategy should not be treated as a “green light” for trustees to ignore the spirit of Retirement Income Covenant, according to the SMSF Association.

SMSF Association chief executive, John Maroney, said the association welcomed the exemption as it had been concerned about red tape for SMSFs trustees but noted that having one could still be beneficial.

“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,” Maroney said.

“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.”

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Maroney also said that codifying it in the law that SMSF trustees must do so would impose an additional compliance burden on SMSF trustees and SMSF auditors and in cases when there was a strong incentive for SMSF trustees to look after their own best interests.

“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 said.

Maroney previously noted there was “overlap” between the Retirement Income Covenant and the Investment Strategy Covenant which could cause confusion for trustees.