The RBA has fired off a round of hand-wringing and lettuce leaf waving over SMSF leverage. From the AFR:
…the last eight years a perfect storm of rule changes and financial upheaval triggered a mass exodus from large super funds. A change in the regulations to enable super fund members to select the manager of their retirement savings in 2005 was quickly followed by a 12-month period when consumers could inject up to $1 million into their super pots. And so they did, in droves.
…In the 12 months to June 2007, nearly 45,000 self-managed super funds were established, nearly double the number set up in the previous year.
Then a financial crisis was added into that heady mix. Thousands of savers were horrified by the performance of their super funds, and the fees they were paying, and decided they could do better themselves.
…Michael Rice, a director at actuarial firm Rice Warner, believes the RBA’s concerns are well-placed. Indeed a 2010 report on Australia’s $1.6 trillion retirement savings sector recommended that a review of borrowing arrangements be held in 2012, but nothing came of the proposal.
“One of the problems is that the ATO allowed the use of warrants and later limited recourse borrowing arrangements [to fund property investments]. The ATO should clamp down on borrowing,” he says.
And the new Finance Minister is on the job. Also from the AFR:
The Abbott government wants to create a “level playing field” between different types of retirement nest eggs following tax changes in 2007 that triggered an $80 billion surge into property by self-managed super funds.
Assistant Treasurer Arthur Sinodinos told The Australian Financial Review he wanted to make sure SMSFs did not have an advantage over industry and retail super funds.
…“What I noticed [is] that since the global financial crisis there has been an upsurge in interest through investing in self-managed super funds,” he said.
“On one level that is quite understandable, but on another we have to make sure that no matter what the vehicle is, it’s done in such a way that the ultimate objective is to preserve and maximise the savings for retirement.”
…“In the super space we need to make sure it’s a level playing field and that you get appropriate competition between the different funds, the industry funds, the self-managed super funds and that’s the starting point,” Mr Sinodinos said in his first interview since the new government was sworn in last week.
What does that mean, exactly? It doesn’t sound to me like Sinodinos has any interest in reigning in SMSF leverage, which is the key issue. Around tax, like shares, SMSF property has capital gains tax advantages (it’s basically zero if held to the pension phase). How is he going to shift taxes to make a level playing field between personal and industry funds? If it’s to reduce taxes on industry funds entering property this is absurd pro-cyclicality.
Or is this a case of the old bait and switch trick? I’m interested in reader’s views here.
