SMSF Borrowing

SMSF borrowing issues can be fixed without a ban, says KPMG

KPMG, Financial System Inquiry (FSI) - SMSF Borrowing LRBAsKPMG has questioned the need for a ban on leverage in SMSFs, saying “issues associated with SMSF leverage can be overcome or mitigated through effective financial advice, clear and concise guidance materials, and through a robust annual audit”. This is one of KPMG’s recommendations in a second submission to the Financial System Inquiry (FSI).

Instead of a ban on SMSF borrowing KPMG thinks there are a number of measures that could reduce the risks associated with leverage in SMSFs, including:

  • a focus on advice relating to SMSFs, to check recommendations to set up SMSFs are appropriate
  • additional guidance by APRA in relation to credits risks where SMSFs may be “borrowing to purchase poor quality assets”
  • expanding protections under the Australian Credit Law to LRBAs

Read More »SMSF borrowing issues can be fixed without a ban, says KPMG

Change portability rules so super funds will invest in bonds

QIC Financial System Inquiry (FSI) - superannuation portability rulesQIC has recommended changes to the portability rules for superannuation to the Financial System Inquiry, as it would enable funds to make more illiquid investments.

“The superannuation system dominates Australia’s pool of savings but has a lower allocation to bonds (fixed interest) than the retirement saving systems of other comparable economies,” said the submission to the second round of consultation by the inquiry.

QIC says this is due to a number of factors, including the “predominantly defined contribution nature of the Australian superannuation system” and the portability rules for superannuation.

Read More »Change portability rules so super funds will invest in bonds

Conduct a review into SMSF borrowing, says CAANZ

CAANZ Financial System Inquiry (FSI) - SMSF BorrowingCAANZ, the Chartered Accountants of Australia and New Zealand, previously know as the ICAA, have recommended a review be conducted into SMSF borrowing and argued against placing limitations on setting up SMSFs, in a second submission to the Financial System Inquiry.

SMSF borrowing

“We have long supported and encouraged a review of direct borrowing by superannuation funds,” said the submission.

“We encourage the Inquiry to recommend a comprehensive review of borrowing within superannuation”

CAANZ says it is “not too late” to review the area, and rejects arguments that a review is not required due to “relatively low levels of take-up” of Limited Recourse Borrowing Arrangements (LRBAs). Instead this reflects the “timeliness of a review to determine whether borrowing is appropriate or not before it becomes widespread”.

Read More »Conduct a review into SMSF borrowing, says CAANZ

Ban SMSF borrowing, Deloitte tells Financial System Inquiry

Deloitte Financial System Inquiry (FSI) - SMSF BorrowingDeloitte has argued that SMSFs should be banned from using direct leverage, in a submission to the second round of consultation by the Financial System Inquiry.

“The primary objective of superannuation is saving for retirement,” said Deloitte in the submission. However as APRA-regulated funds only use limited leverage, “allowing SMSFs to use direct leverage creates competitive non-neutrality in the system”.

“A general prohibition of direct leverage on superannuation funds would still allow individuals to use leverage on their personal, non-compulsory, and non-tax-advantaged savings,” said Deloitte.

Read More »Ban SMSF borrowing, Deloitte tells Financial System Inquiry

Restrict personal guarantees for SMSF borrowings, says SPAA

SMSF borrowing LRBAs - personal guarantees, related-party borrowings, AFSL regimeWhile arguing that SMSF borrowing should continue to be allowed, SPAA has said that personal guarantees be restricted, along with related-party borrowings, and LRBAs be moved under the AFSL regime. These are some of the recommendations that SPAA has made in the second submission to the Financial System Inquiry.

SMSF Borrowing

“We do not believe that direct gearing through the use of LRBAs is occurring in an excessively risky manner that may create vulnerabilities in the superannuation and financial systems,” said SPAA.

“The prevalence of SMSFs having only one asset which has been acquired through an LRBA is very low, which adds additional support that LRBAs in general are being used appropriately by SMSFs to ensure there is diversification of assets held by the fund”.

Read More »Restrict personal guarantees for SMSF borrowings, says SPAA

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