Industry funds and SMSFs at loggerheads

24 April 2017

The industry funds and the SMSF Association have found themselves at loggerheads over the future ability of self-managed superannuation funds (SMSFs) to undertake borrowing arrangements.

While the SMSF Association has rejected last week’s Australian Labor Party policy announcement of its intention to ban or significantly reduce the ability of SMSFs to borrow, both the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) have defended such an approach.

“Banning recourse borrowing by SMSFs was recommended by the Financial System Inquiry with good reason,” AIST chief executive, Eva Scheerlinck said.

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“Allowing SMSFs to take on extra risk through borrowing potentially affects everyone as it is the taxpayer who ultimately underwrites this risk through the provision of the Age Pension when things go wrong.”

However SMSF Association managing director and chief executive officer, Andrea Slattery said her organisation remained supportive of limited recourse borrowing arrangements (LRBAs).

“The fact remains there’s little or no convincing evidence that the use of LRBAs by SMSFs is playing a significant role in affecting housing affordability,” Slattery said. “The most recent Australian Tax Office (ATO) statistics show that SMSFs hold $24.3 billion in LRBAs, with these financial instruments being predominantly used to invest in residential and non-residential property in an almost 50-50 split.”

“That estimated $12 billion where SMSFs have used LRBAs to invest in residential housing has to be put in the context of a $6.43 trillion housing market. In other words, LRBAs comprise only 0.18 per cent of the market. On these figures, it’s hard to argue LRBAs are a ‘market mover’,” she said

Slattery said the idea that SMSFs had plunged into property investment in recent times also was not borne out by the statistics, with SMSF residential property holdings (both geared and ungeared) being consistent between four to six per cent of total SMSF assets in recent times.

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M/s Scheerlink, making sweeping statements out of ignorance highlights the lack of understanding of how LRBA's are established in a SMSF.
Firstly by the very nature of the structure most lending institutions require a deposit of around 40.0% of residential housing acquisition cost before they will lend any money.
In the commercial area, deposits are a little lower only because of the potential of a higher rental return ( 9%-11.0%) to service debt.
Unions like the Labour Party in general, are stuck in an ideology that is 1950's thinking.

We look forward to the day when the Labour Party and the Left leaning Liberals start to put all Australians first and not be prolific "bed wetters"

Alleycat its ok to gear in super but only if you are investing into the internally geared / long short funds they provide! More pot and kettle from the self interested FUM monsters.

ISA is the most conflicted, self interested, vertically aligned institution in existence in Australia today, with a political party firmly in its pocket, figuratively and literally. Anything they say has only one goal, not for the public benefit, but for their own financial advancement. We need the super industry 7 trustee review to sweep these groups from the table. How we let the likes of unions run such an important (& lucrative for them) financial part of the nation's wealth is a diabolical oversight from years ago.

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