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”.
However the RBA does support “some limited leverage” for liquidity purposes, which already existed in the SIS legislation prior to the wider changes to allow super funds to borrow to buy assets.
Superannuation Costs and Fees
According to the submission the RBA supports the Inquiry’s wide-ranging consideration of measures to enhance competition and hence reduce costs.
The RBA reiterated the view that “disengagement among members, as well as complexity and difficulty in comparing fees across funds all likely contribute to the relatively high cost of Australia’s superannuation system”.
Though both costs and outcomes need to be considered together, “measures that reduce costs may create additional risks to members’ retirement incomes, government and employer finances, and financial stability,” said the RBA.
Super Fund Liquidity
“The portability requirements, in their current form, may result in individual funds holding more liquid assets than is optimal,” said the RBA.
“Regardless of whether these requirements change, it is important that superannuation funds continue to assess the potential liquidity risks associated with a sudden sell-off of a particular asset class”.
The Reserve Bank agrees with the Inquiry’s view that providing superannuation funds with access to a dedicated liquidity facility at the Reserve Bank would be an inappropriate way to address their normal liquidity challenges.
The Financial System Inquiry is progressively releasing submissions received as part of the second round of consultation on its website.
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