News

Superannuation should not include leverage, says RBA

RBA superannuation leverage Financial System Inquiry (FSI)The RBA has used its second submission to the Financial System Inquiry to argue that the superannuation system should not involve leverage.

Borrowing by Super Funds

“The compulsory and essential character of retirement savings implies that it should remain largely unlevered,” said the RBA.

As the “general absence of leverage in superannuation was a key source of resilience in the Australian financial system during the financial crisis” the RBA supports the observation in the Financial System Inquiry (FSI) interim report that “leverage by superannuation funds may increase vulnerabilities in the financial system”

The RBA also notes that borrowing by SMSFs to buy property could “act as an additional source of demand that exacerbates property price cycles”.

Read More »Superannuation should not include leverage, says RBA

Overturn the recent amendments to FoFA, says AIST

AIST FoFA, SMSF borrowing Financial System Inquiry (FSI)The Australian Institute of Superannuation Trustees (AIST) have used their second submission to the Financial System Inquiry to argue for a return to the original FoFA reforms and a ban on borrowing by super funds.

FoFA

AIST makes a number of recommendations relating to the recent and proposed changes to the Future of Financial Advice (FoFA) reforms, including:

  • “That the recent amendments to FoFA be overturned”
  • Reinstating the “primary requirement to take into account the member’s best interests”
  • Prohibiting the “provision of general advice over the counter without any account of the customer’s circumstances”

Read More »Overturn the recent amendments to FoFA, says AIST

SMSFs shouldn’t be prudentially regulated, says APRA

APRA prudential regulation SMSFs, superannuation borrowing Financial System Inquiry (FSI)In its second submission to the Financial System Inquiry APRA has argued against the prudential regulation of SMSFs and against direct leverage by superannuation funds.

No prudential regulation of SMSFs

While saying that there is a “strong case” for the prudential regulation of the currently APRA-regulated super funds, APRA said “that does not extend to self-managed superannuation funds”.

Given that SMSFs involve the members also being the trustees, or the directors of the corporate trustee, APRA says that the “interests of members and trustees are naturally aligned”.

“The cost of prudentially regulating SMSFs would, simply by virtue of the sheer number of such funds, be substantial and significantly outweigh any benefits,” said APRA.

Read More »SMSFs shouldn’t be prudentially regulated, says APRA

No minimum balance requirement to set up SMSF, says ASFA

ASFA minimum SMSF balance, Financial System Inquiry (FSI)The Association of Superannuation Funds of Australia (ASFA) has used its second submission to the Financial System Inquiry to argue that there shouldn’t be a minimum balance required to set up an SMSF, that SMSF trustees can decide if costs are too high, and that direct borrowing by super funds should be banned.

Limits on establishing an SMSF

“ASFA does not consider that there should be any specific limitations on the establishment of SMSFs being imposed,” said the submission. ASFA said that a minimum balance requirement would be “difficult to implement and enforce”.

Read More »No minimum balance requirement to set up SMSF, says ASFA

Current State of Superannuation Changes: August 2014

Superannuation Changes - July 2014Pending Superannuation Changes – August 2014

Super Guarantee & LISC

The Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 [No. 2] was back in the House of Reps on the 26th of August, but it’s still unclear what is going to happen to the Government’s related plan to slow the increase in the superannuation guarantee rate and repeal the LISC.

FoFA

On the 28th of August the House of Reps passed the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, after amendment by the Government to implement some of the changes promised to the Palmer United Party. These changes were part of the deal to get the votes to defeat the disallowance of the FoFA regulations in the Senate. The amendments can be found on the Parliament website here (PDF).

Read More »Current State of Superannuation Changes: August 2014

Let ASIC accept superannuation complaints, says Choice

ASIC - superannuation complaints, ChoiceChoice has used its second submission to the Financial System Inquiry to argue that ASIC should be given the power to accept superannuation complaints, among other recommendations.

Superannuation complaints

One of the recommendation contained in Choice’s submission is:

“ASIC is granted the ability to accept super complaints.”

“Super complaint mechanisms can be a useful companion tool to market studies and investigations powers, or can exist as a stand-alone mechanism,” said Choice.

Read More »Let ASIC accept superannuation complaints, says Choice

ASIC doesn’t support minimum account balances for SMSFs

ASIC - SMSF minimum balance, retirement, longevity riskASIC has said it is “not supportive of minimum account balances on SMSFs” in a second round submission to the Financial System Inquiry.

SMSF minimum balance

While ASIC doesn’t support a minimum balance requirement for SMSFs, there are alternatives which it could support. “There may well be a role for introduction of either a ‘soft’ minimum balance for SMSFs or guidance on an appropriate minimum balance,” said ASIC. According to the submission this could include a minimum balance being required unless “certain requirements are satisfied”, or an adviser having to justify the recommendation on an ‘if not, why not’ basis.

It is also worth considering if better information can be given to potential SMSF members about the cost-effectiveness of SMSFs, “for example, Statements of Advice in relation to SMSFs could be subject to a requirement to set out the operating costs of an SMSF compared to the cost of staying in the client’s existing APRA-regulated fund,” said ASIC.Read More »ASIC doesn’t support minimum account balances for SMSFs

Longevity risk a “major weakness” of retirement system: Actuaries Institute

Longevity risk - retirementThe Actuaries Institute has called longevity risk a “major weakness of Australia’s retirement income system”, in a submission to the Financial System Inquiry.

The second-round submission to the Financial System Inquiry also covers superannuation and retirement policy, retirement income products and fees of super funds.

Superannuation and retirement policy

The Actuaries Institute “agrees that there is no legislative or formal statement of the guiding objectives for the retirement income system”. Such a “policy blueprint is essential if we are to effectively assist our ageing population”, as:

“In Australia we currently have a large superannuation system that focuses on wealth accumulation but lacks the same focus on retirement income streams that will sustain retirees’ future living standards. The current system is complex and individuals often lack the financial skills to make critical decisions about retirement funding.”

Read More »Longevity risk a “major weakness” of retirement system: Actuaries Institute

Guidance needed on wholesale investor test for SMSFs, says SPAA

Further guidance SMSF retail/wholesale investor test, SPAASPAA has welcomed the statement by ASIC regarding the “treatment of an SMSF as a wholesale or retail investor”.

“It would appear that the announcement by ASIC on 8 August is to clarify the fact that the threshold to determine whether the trustee of an SMSF is a wholesale or retail investor has been reduced from $10m to $2.5m”, says SPAA.

While welcoming the announcement by ASIC, SPAA “believes that further guidance is required to be issued by ASIC on what constitutes a wholesale investor”.

“While the legislation may prescribe various amounts there are no regulations to indicate how those amounts are to be calculated”, says SPAA.

Read More »Guidance needed on wholesale investor test for SMSFs, says SPAA