Speaking in a recent webinar, SMSF Association policy manager Tracey Scotchbrook noted that limited recourse borrowing arrangements (LRBAs) were spared in the October Budget despite some of the lobbying and speculation about a potential ban.
However, Ms Scotchbrook noted that the Council of Financial Regulators and ATO has completed a recent review into leverage and risk in the superannuation system, which is focused on limited recourse borrowing arrangements.
“That review was completed in September and the report is due to government if it hasn’t been received already. There’s nothing publicly available but we look forward to seeing that once its released,” she said.
Ms Scotchbrook said the outcome of that report will likely provide an idea of what the government’s policy agenda will be in regard to LRBAs.
“While borrowing strategies are not appropriate for everyone, LRBAs have been an important measure for the SMSF sector and we see them used quite widely for real business property as well as targeted investments in residential property,” she said.
The last report released on leverage and risk in the superannuation system in 2019 concluded that the levels of borrowing by SMSFs at that time was unlikely to pose systemic risk to the system.
It did however highlight that LRBAs in some cases can represent a significant risk to some individuals’ retirement savings, particularly where they have a low balance SMSF with a high asset concentration and personal guarantees.
The Council of Financial Regulators stated in the previous report that additional data from improved data collection would allow for further assessment of LRBAs in the 2022 report.
SMSF Association chief executive John Maroney said while its appropriate for the Council of Financial Regulators to monitor what’s happening with borrowing in super, he pointed out that the volume of debt in the sector has not increased in recent years.
“The level of borrowing has dropped from about 50 per cent down to 30 per cent in past few years. It’s been an area of significant investment return and has not seen increased risk,” he said.
