Defence mounted on LRBAs
The Self-Managed Super Professionals Association (SPAA) is gearing up to counter the Financial System Inquiry's recommendations with respect to limited recourse borrowing arrangements.
The group has used senior spokesmen to argue that concerns about the level of borrowing within superannuation are being overblown.
The group has closed ranks against the FSI proposals on LRBAs even though SPAA chief executive, Andrea Slattery acknowledged that the overall final inquiry report had barely mentioned SMSFs.
"The only potential downside for SMSFs is the prospective prohibition on limited recourse borrowing arrangements (LRBAs), although all current arrangements will remain in place. No date has been set for the proposal to begin," she said.
Weighing into the debate today, accounting group, Chan & Naylor described the FSI proposal as "unhelpful and self-defeating".
"With Australia's welfare safety net already under severe strain, more Australians must be encouraged to prepare for an independent retirement, and being able to purchase and retain an asset that grows in value over the next 30 years within a prudently managed SMSF is an excellent way of achieving this outcome," Chan & Naylor managing director, Ken Raiss said.
"Moreover, the notion that an SMSF should not be able to borrow for investments (like property) but that APRA regulated funds can via geared managed funds, as proposed in the report, is a showcase in duplicity."
According to Raiss there are two significant industry flaws that continue to be ignored. Firstly big banks' profits are significantly derived from insurance and retirement products sales, and thus subject to an inherent conflict of interest. Secondly the major industry and retail super funds, who have consistently criticised the ability to leverage within SMSFs, are themselves allowed to apply gearing internally by promoting managed funds with internal gearing.
"The ultimate irony is that should these funds implode for whatever reason, then it is the Government who will be left to pick up the pieces via tax payer funded compensation arrangements," said Raiss,
In the past 48 hours, SPAA spokesmen such as Jordan George have used national media to declare that just because recent statistics have shown significant growth in the level of borrowing within super, this did not necessarily make it risky.
"It's still a very small amount that is being borrowed by SMSFs overall," he said.
"Research we have undertaken, speaking to some of the major lenders in the sector that are lending to SMSFs has shown that SMSFs are borrowing in a very responsible manner and that the banks that are lending to them do have quite stringent controls," George said.
George has suggested that mechanisms other than a ban are available for dealing with any LRBAs issues.
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