A majority of SMSF practitioners predict the government will reject the Financial System Inquiry’s (FSI) recommendation to ban limited recourse borrowing arrangements (LRBAs), according to a recent straw poll.
In a SMSF Adviser straw poll consisting of 135 practitioners, 61.5 per cent of respondents said the government will not pass on the FSI’s recommendation to ban LRBAs.
Only 38.5 per cent or 52 practitioners expect the government will adopt the recommendation.
Chartered Accountants Australia and New Zealand head of superannuation Liz Westover said the government needs to undertake further analysis before endorsing or rejecting the FSI’s recommendation to ban borrowing.
A more comprehensive analysis and review is needed, not only in regard to the concept of borrowing but the legislative and regulatory framework around it as well, said Ms Westover.
“My concern is that the recommendation may be premature and that further, more thorough analysis is required before the government endorses or rejects the proposal,” she said.
Ms Westover said she has long been concerned the SMSF industry does not have the right regulatory framework around borrowing.
“The question needs to be asked: If the legislative framework was different, would the concerns around borrowing still exist?” she said.
Ms Westover said concerns have been raised by the major regulators in recent times around the impact of borrowing on the housing market and other broader economic implications.
“Furthermore there is concern about inappropriate advice in this area and inferior investments being driven by ability to borrow,” she said.
Inappropriate advice, she said, has also occurred, which may have driven people into SMSFs when they shouldn’t have been or into investments that should not have been undertaken. ]
“However, borrowing can be a useful and very rewarding means to increase retirement savings,” she said.
“Ultimately, we need to be careful not to ‘throw the baby out with the bathwater’.”
Ms Westover said while the FSI recommendation needs to be taken seriously, “a considered approach is warranted before adoption or rejection”.
“[It will] take a broader conversation with a lot more stakeholders round the table to talk about what the real facts and trends are, what people are doing and why they are doing it,” she said.
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