As we close on nearly 12 months since David Murray presented the Financial System Inquiry (FSI) final report, we have today seen the Government response overwhelming accept the majority of the inquiry’s recommendations. Importantly, one key recommendation from the FSI panel was to impose a ban on the use of limited recourse borrowing arrangements (LRBAs) with self-managed super funds. The rationale for this decision was based upon potential ‘systemic risks’ that leverage inside superannuation posed for retirement savings. Arguments for and against the ability to borrow inside super have been strongly represented over the past 12 months – but in reality, the level of activity with borrowing has been quite small in the context of total assets inside the SMSF and broader superannuation sectors.
So, it was good news to see the announcement today that the Government rejected the FSI recommendation to ban direct borrowing by super funds.
Not entirely clear sailing…
Whilst the recommendation provides relief on the ability to acquire assets using borrowings in accordance with section 67A and 67B, it is acknowledged within the report that some concerns do exist, however they are currently insufficient to justify such a significant policy intervention. The Government will however actively monitor leverage and risk of borrowing within super over the next three years, which will allow for better analysis of the improved data collection on LRBAs recently updated by the ATO.
So, do you think the Government has made the right decision by rejecting the FSI recommendation? Let me know your thoughts in the poll below: