The Federal Government has backed superannuation fund borrowing arrangements for at least the next three years in their response to the 44 recommendations of the Murray Inquiry into the Australia's financial services system.
The only recommendation rejected was the one to ban Limited Recourse Borrowing Arrangements (LRBA's) currently permitted by self managed superannuation funds (SMSF's).
This announcement will be welcomed by many private investors saving for their retirement who want to secure assets at today's prices and pay them off over time.
The property and lending industries will also welcome the certainty that this announcement brings, as the long-term view taken by SMSF's using LRBA's has been providing a significant platform for real estate demand that would have been difficult to replace.
Family businesses will also welcome this news as the use of LRBA's can be a useful tool to help fund retirement for businesses in transition from one generation to the next or to release capital to non-family owners.
To address the anecdotal evidence about so-called property spruikers abusing the market opportunity created by LRBA's, it is hoped that ASIC take this opportunity to increase oversight to ensure that investors are getting the right advice.
Here is an excerpt from the Government's response:
"The Government does not agree with the Inquiry’s 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 will however commission the Council of Financial Regulators and the Australian Taxation Office (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. The agencies’ analysis will be used to inform any consideration of whether changes to the borrowing regulations might be appropriate."
The Government has agreed to all but one of the report's 44 recommendations, rejecting the idea of stopping direct borrowing by superannuation fund. The Productivity Commission will be tasked to review the superannuation system, described as "fragmented, costly and suffering from a lack of member engagement", to develop alternative models for allocating default fund members to products. Laws will be passed next year for stronger penalties against superannuation fund directors.