Government won’t ban SMSF LRBAs, responds to FSI

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The Federal Government has said that SMSF Limited Recourse Borrowing Arrangements (LRBAs) won’t be banned, as part of the response to the Financial System Inquiry (FSI).

The Government has not accepted the recommendation of the Financial System Inquiry to ban most forms of super fund borrowings, including SMSF LRBAs.

“While the Government notes that there are anecdotal concerns about limited recourse borrowing arrangements, at this time the Government does not consider the data sufficient to justify significant policy intervention,” says the Government response.

“The Government will however commission the Council of Financial Regulators and the Australian Taxation Office (ATO) to monitor leverage and risk in the superannuation system and report back to Government after three years.”

The Government has accepted several of the other Financial System Inquiry recommendations.

An objective for the superannuation system will be enshrined in legislation.

The FSI final report recommended that choice of super fund be extended to all employees. The Government response says:

The Government agrees to extend the choice of fund arrangements to more employees by removing the deemed choice for certain enterprise agreements and workplace determinations.

The final report also recommended changes to the way in which default super funds are selected, unless a review found a significant improvement in efficiency and competition among super funds. The Government says the Productivity Commission will be tasked with conducting this review.

“The Government will also explore additional measures to improve the efficiency and competitiveness of the current system. While MySuper has been a strong step in the right direction, more needs to be done to reduce fees and improve after-fee returns for fund members.”

The Government will also support the development of a Comprehensive Income Product for Retirement (CIPR).

However, the Government does not fully agree with the recommendation of the Financial System Inquiry that public offer superannuation funds have at least a majority of independent directors. A bill to require a minimum of one-third independent directors is currently before the Parliament.

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