The federal government has announced it does not agree with the Financial System Inquiry’s (FSI) recommendation to prohibit limited recourse borrowing arrangements by superannuation funds.
“While the government notes that there are anecdotal concerns about limited recourse borrowing arrangements, at this time the government does not consider the data sufficient to justify significant policy intervention,” the government said in its FSI response.
The government did, however, commit to commission the Council of Financial Regulators and the ATO to monitor leverage and risk in the superannuation system and report back to government after three years.
“This timing allows recent improvements in ATO data collection to wash through the system,” it said.
“The agencies’ analysis will be used to inform any consideration of whether changes to the borrowing regulations might be appropriate.”
Upon the announcement several industry bodies commended the federal government’s stance.
The SMSF Association (SMSFA) said it fully supported the government’s decision, made as part of its response to the Financial System Inquiry .
“It’s always been our firm conviction that LRBAs don’t pose any systemic risk to the financial system and the government agrees,” SMSFA chief executive Andrea Slattery said.
“The government does recommend the monitoring of LRBAs by the Council of Financial Regulators and the ATO to review any risks associated with LRBAs, and to report back in three years.
“This is a similar recommendation to the Cooper inquiry in 2010 – we supported it then and support it now.
“It is in line with current government monitoring procedures.”
The Institute of Public Accountants (IPA) also welcomed the government’s rejection of the proposal to ban the use of LRBAs within SMSFs.
“The IPA has advocated that rather than a ban on LRBAs there should be more targeted measures to address inappropriate use of gearing linked to poor-quality advice,” IPA chief executive Andrew Conway said.
“The IPA believes that the issue is not SMSF borrowing per se, but inappropriate advice provided by unlicensed advisers.
“A sledgehammer approach was never going to be an appropriate way to eliminate the use of poor-quality advice relating to SMSF-related gearing.”
Conway said the industry needed better analysis of ways to address the risks surrounding borrowing before merely imposing an outright ban.
The Self-Managed Independent Superannuation Funds Association also said it was pleased LRBAs would remain as part of a properly structured retirement plan, provided appropriate regulation and supervision was enforced and supported by the data collected by the ATO.