Compliance & Regulation

LRBAs need clear policy setting: Frydenberg

Person balances on a tightrope above the ground.

Inquiry looking to find balance risk and growth of LRBAs.

The federal government will consult “with an open mind” on the future of limited recourse borrowing arrangements (LRBA) and talk to all stakeholders before making a decision, according to Assistant Treasurer Josh Frydenberg.

“I understand that this is an important and sensitive issue for many of you here, as is the Financial System Inquiry (FSI) recommendation to restore the prohibition on borrowing in superannuation funds,” Frydenberg said.

“The inquiry’s key concern here is that, and I quote: ‘Further growth in superannuation funds’ direct borrowing would over time increase risk to the financial system.’”

“However, we do need to get the policy setting right and bear in mind a valid consideration that super is intended to generate a reliable and sustainable retirement income.

“With an open mind, we will consult with all parties to ensure that we are positioned to make a fully informed decision that serves the best long-term interest of consumers and delivers a financial system which is resilient as possible for economic and financial shocks.”

The final FSI report, released on 7 December, highlighted that leveraged borrowing arrangements had grown rapidly, but noted the level of borrowing was relatively small, Frydenberg said.
“For example, they currently represent around 1.6 per cent of total SMSF assets,” he said.

“The inquiry recommended a complete ban on borrowing, but we need to continue to explore the full range of options in this area, for example, should personal guarantees by SMSF trustees be banned?

“I welcome the [SMSF] Association’s best practice guidelines for SMSF lending and SMSF advice, but should we be doing more to improve the standards of advice given to SMSF trustees considering leveraged investments?

“These are all important issues for the industry to continue to provide government with their views on.”

He said there was a wide range of issues on the government’s agenda in superannuation.

“My approach will be to methodically work through the issues and engage closely with all stakeholders in building broad agreement about how the system can be improved,” he said.

The government has not indicated when it will deliver its decision on LRBAs.


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