Superannuation policy has become increasingly inconsistent and unmoored from its founding principles, according to Garry Crole.
Speaking to SMSF Adviser‘s sister publication ifa, the Sequoia Financial Group chief executive argued that the compulsory super system was designed to “encourage self-reliance,” ultimately with a view to reducing Age Pension dependency. Self-managed superannuation funds (SMSFs), he added, are the clearest expression of that goal.
“More than one million Australians have chosen to accept the responsibility of managing their own retirement savings,” Crole said.
“They determine investment strategies suited to their own circumstances, objectives and risk tolerance, often with the assistance of professional advisers, and they accept responsibility for the outcomes. That willingness to take responsibility should be encouraged.”
It’s for this reason that Crole believes the proposals to scrap capital gains tax discounts, restrict negative gearing and ban residential property borrowing in SMSFs are fundamentally misguided. While he said he supports the government’s goal of increasing housing affordability, he thinks these moves will ultimately have the opposite effect.
“SMSFs have become an important source of long-term investment capital,” Crole said.
He continued: “Where they invest in new residential housing, they help finance construction, create employment, increase housing supply and contribute to solving the very affordability challenge governments are seeking to address.
“That makes them part of the solution and to suggest these are the elite rich is poor form. It is the backbone of the policies compulsory superannuation was founded on.”
Crole, of course, isn’t alone in this perspective; last month, Institute of Public Accountants (IPA) senior tax adviser Tony Greco told the Senate Economics Legislation Committee that the Budget’s CGT and negative gearing changes were tantamount to a “band-aid on an open wound.”
Speaking at the same Senate Committee hearing, Wilson Asset Management founder Geoff Wilson argued that “[taxing] the returns of risk-bearing capital” leads to fewer people taking risk, which results in “fewer companies built, fewer jobs created and a smaller productive economy.”
Crole envisions a similar scenario playing out in residential property in the absence of limited recourse borrowing arrangements.
“Every new home begins with private capital,” he said.
He continued: “Developers purchase land, builders employ Australians, tradespeople, suppliers, engineers, manufacturers … [P]rivate investors provide much of the capital that enables new housing developments to proceed and create the rental accommodation millions of Australians rely upon.
“Without confidence throughout that entire chain, fewer homes will be built.”
Rather than disincentivising Australians “[taking] responsibility for funding their own retirement,” Crole said the government should operate from a simple principle: if an investment contributes to housing supply, employment or the economy, the source of that investment shouldn’t matter.
“Whether the capital comes from an industry fund, a retail fund, an SMSF or an individual investor, public policy should encourage responsible long-term investment that delivers more homes for Australians,” he said.
Crole added that achieving this would require a super system that empowers people to “make informed decisions based on their own circumstances, objectives and tolerance for risk.”
Given present circumstances, though, one wonders how palatable that idea actually is among the Australian legislature – or the Australian public, for that matter.
Sequoia, after all, is one of the wealth management groups under considerable scrutiny in the fallout of Shield and First Guardian. Its largest licensee, Interprac Financial Planning, invested around $677 million in client super into the two collapsed funds via former authorised representatives Venture Egg and Rhys Reilly.
ASIC is currently suing Interprac, alleging “critical oversight and compliance failures,” and Interprac represents 1,214 of the 3,073 Shield and First Guardian-related complaints lodged with AFCA as at 30 April. (It’s worth noting, however, that AFCA has suspended determinations on Interprac complaints until Interprac’s lawsuit against the complaints body is resolved.)
Considering that Shield and First Guardian – both of which invested in high-risk property developments – arguably precipitated the government’s latest round of super reforms, it’s difficult to envision much political capital being spent on tilting the super system towards member autonomy in the near term.
Even if superannuation could play a role in solving the housing crisis, as Crole suggests, it seems like the system is currently preoccupied with a crisis of its own.
