The Association of Superannuation Funds of Australia (ASFA) has called for SMSF borrowing to be banned in the upcoming 2018/19 Federal Budget.
ASFA used its pre-Budget submission to call on the Government to restore the ban on most forms of borrowing by super funds, by removing Section 67A of the SIS Act on a prospective basis.
ASFA represents APRA-regulated super funds. Whereas SMSFs, which are the users of LRBAs, are regulated by the ATO.
“The amount of funds borrowed using LRBAs has increased substantially, from $497 million in June 2009 to $25.4 billion in June 2016, an increase of around 5,000 per cent. Borrowing, even with LRBAs, magnifies the gains and losses from fluctuations in the prices of assets held in funds, and increases the probability of large losses within a fund. This puts individuals’ superannuation at risk,” says ASFA, in its submission.
According to ATO statistics – as at September 2017 – SMSFs held $672.7 billion in total net assets, with $30.73 billion of LRBAs, or around 4.57%.
“LRBAs are currently used by around 7 per cent of SMSFs,” said ASFA.
“Over half of the SMSFs making use of LRBAs have more than 80 per cent of their total assets in LRBAs. This indicates a lack of diversification within such funds.”
“Given the contractual arrangements that funds using LRBAs currently have in place and the difficulties that would be associated with the forced sales of more than $25 billion in assets, ASFA considers any changes to the arrangements should involve removing the ability to enter into LRBA arrangements in the future.”
The Financial System Inquiry recommended that LRBAs be banned, though this recommendation was not adopted by the Government.
Banning SMSF borrowing wasn’t the only recommendation of the ASFA pre-Budget submission. Like many other bodies, ASFA called for the $450 monthly threshold for Super Guarantee to be removed.
ASFA also recommended that Treasury and ASIC review the Superannuation Complaints Tribunal’s funding needs, following concerns about the transition to the Australian Financial Complaints Authority (AFCA).