SMSF industry applauds long-awaited response to FSI
The government’s decision to allow SMSF borrowing to continue and enshrine the objectives of the superannuation system in law has been well received by the SMSF industry.
SMSF Association chief executive Andrea Slattery said the association completely supported the government’s position on limited recourse borrowing arrangements (LRBAs), and the association has always held the conviction that LRBAs pose no systemic risk to the financial system.
"Although the Government's response to the FSI says it does have some 'anecdotal concerns' with LRBAs, it does not consider there is sufficient data to justify any policy intervention,” said Ms Slattery.
SMSF Academy director Aaron Dunn has similar views and said the level of activity with borrowing has been quite small in the context of total assets inside the SMSF and broader superannuation sectors.
Mr Dunn said it is important to note that the government did acknowledge some concerns, although they are currently insufficient to justify a significant policy intervention.
“The government will, however, actively monitor leverage and risk borrowing within super over the next three years, which will allow for better analysis of the improved data collection of LRBAs recently updated by the ATO," he said.
IPA chief executive Andrew Conway said a sledgehammer was never going to be an appropriate way to eliminate the use of poor quality advice on SMSF-related gearing.
“We agree with the Government’s observation that while some anecdotal concerns over LRBAs exist, there is insufficient data to justify a ban,” Mr Conway said.
“Interestingly, there are also no alternative measures other than an outright ban to mitigate some of the concerns raised – for example, if they are worried about the diversification, why not consider excluding LRBAs for funds with small balances.”
Vanguard, on the other hand, welcomed the government's intention to enshrine the objectives of the super system in legislation, along with an acceptance of the need for the development of comprehensive income products.
Head of market strategy Robin Bowerman said “this remains an area of the system where much more work needs to be done to help investors achieve the best possible outcomes in terms of product choices and ability to manage risk in the retirement years”.
The SMSF Owners' Alliance also agreed that legislating the objectives of superannuation was an important step.
“SMSF Owners' Alliance agrees that the objectives of superannuation should be legislated so that policy decisions are made within a broadly agreed framework on the purpose of superannuation,” said the association.
“We agree the market for comprehensive retirement income stream products needs to be developed. As noted in the FSI Report, these products should not apply to SMSF funds as the trustees and members of the fund are one and the same.”