This submission will focus on three questions raised by the Financial System Inquiry interim report:
- Restoring “the general prohibition on direct leverage of superannuation funds on a prospective basis”
- “To what extent should the Inquiry be concerned about the high operating expenses of many SMSFs?”
- “Should there be any limitations on the establishment of SMSFs?”
Leverage in superannuation funds
Given that the Financial System Inquiry (FSI) interim report notes “leverage in APRA-regulated funds is small, with total borrowings of under $2 million reported each quarter over the past year” this submission will be limited to consideration of borrowing by SMSFs.
Borrowing by SMSFs has been a growing and changing area, which has also caused concern in some sectors. This includes the Super System Review (Cooper Review) panel, which recommended that a review of SMSF borrowing be conducted within two years – which would have been by 2012:
“The 2007 relaxation of the borrowing provisions and the consumer protection measures that have recently been announced should be reviewed by government in two years’ time to ensure that borrowing has not become, and does not look like becoming, a significant focus of superannuation funds.”