Speaking to SMSF Adviser, PIPA chair Ben Kingsley said he considers the risk of limited recourse borrowing arrangements (LRBAs) creating any mass problems for SMSFs to be remote and that issues around borrowing should be addressed in other ways first.
“Let’s start with educating SMSF trustees first by making sure they understand the risks associated with incorporating borrowing into their investment strategies,” said Mr Kingsley.
“Secondly let’s put some better regulation around the investments they are trying to borrow money on – for example if they are looking to borrow money to invest in direct property then let’s regulate advice on property investment.”
Mr Kingsley said the government should also be looking at some of the other mechanisms on the lending side that can be changed.
“I would be encouraging lenders to remove the personal guarantee obligation which will then remove risks for the super fund as it removes any further obligation of the trustees or the individuals who are providing those guarantees,” he said.
“Obviously the banks may need to address their pricing in terms of the interest they charge clients by removing that risk, but that would be another solution outside of just putting a ban on lending inside a super fund.”
Restricting SMSF trustees from using LRBAs, Mr Kingsley said, is giving consumers less opportunity to be able to invest for a self-funded retirement.
“The goal of super isn’t necessarily just a savings vehicle, it’s an investment vehicle to allow people to provide for a self-funded retirement to take the pressure off government to provide for people in their retirement,” he said.
ban personal guarantees and legislate for lower LVRs and essentially every criticism levelled at LRBA’s dries up and disappears.
Get gearing down to a level where almost impossible to fail eg 50% and then gearing will be delivering far, far more positive benefits to people’s super than damaging. People who might not have had enough to last all their retirement now will.
That will be frustrating to those who are capable of dealing with higher levels of risk but it will “bullet proof” borrowing in super for the future
Wouldn’t it be simpler to enforce current real estate laws so vendor’s agents can’t give SMSF property investment advice? It is this group that are pushing over priced, unsuitable property to investors, and “educating’ them into SMSF investing.
Our biggest observation is that the professionals don’t know the differences between the two groups to direct their clients to the appropriate source of advice. Look for those with a suitable qualification and PI insurance for the advice. This is a unique PI policy only available to property investment advisers: no real estate agents or buyers agents!
May I suggest that anyone who has taken the step to set up an SMSF has almost invariably also borrowed, at some stage, to buy a home and provided a personal guarantee for this debt. The current LRBA non-recourse provision limits the collateral to the mortgaged property and quarantines the other superfund assets. The personal guarantee is simply support for the risk of a shortfall in the event of forced disposal, which is nothing more than a standard term in any secured bank loan. Must we all pay significantly higher interest rates to save a few from their own stupidity. Where will this move to a Nanny State stop.