The Financial System Inquiry’s recommendation to abolish the ability to leverage debt within self-managed super funds has been lambasted by a wealth advisory group.
Chan & Naylor said at a time when Australia faces “falling living standards” and a “ticking time bomb” in the form of an ageing population, the FSI’s recommendation to clamp down on SMSF borrowing is “unhelpful and self-defeating counsel that ignores Australia’s future retirement needs and reflects the ongoing hypocrisy of the broader financial services sector”.
“With Australia’s welfare safety net already under severe strain, more Australians must be encouraged to prepare for an independent retirement, and being able to purchase and retain an asset that grows in value over the next 30 years within a prudently managed SMSF is an excellent way of achieving this outcome,” said Ken Raiss, managing director of Chan & Naylor.
“Moreover, the notion that an SMSF should not be able to borrow for investments (like property) but that APRA-regulated funds can via geared managed funds, as proposed in the report, is a showcase in duplicity.”
Mr Raiss said the current government needs to focus on restoring a healthy economy whilst addressing the long-term challenge of managing Australia’s future retirement cost blowout.
A recent estimate from the Association of Superannuation Funds of Australia suggests that a married couple currently require $58,128 per annum for a comfortable retirement. On the basis that Australians are living longer and a typical retirement may exceed 30 years, then more than $2 million will be required per couple to see them through the course of retirement, taking into account inflation, Chan & Naylor said.
Mr Raiss contended that, beyond helping those who most need assistance, the state should not, and cannot, cover future retirement costs. He said Australians must be encouraged to save more and invest in growth assets that stand the test of time and inflation, within or outside of their super.
“Clearly, as money devalues and the cost of living continues to increase, being able to purchase and retain a growth asset within super is an excellent means of accumulating wealth to contribute towards an independent retirement. Millions of Australians who have employed exactly the same strategy through a mortgage to achieve home ownership can attest to this,” said Mr Raiss.
He explained that SMSFs give members greater control, smaller fees, greater liquidity and the opportunity to invest in a wider variety of long-term asset classes, including property. This brings broader economic benefits, including a growing national property pool that is paid for by ‘mum and dad’ investors and is vital for providing affordable housing for Australia’s rapidly expanding population.
“Taking away the opportunity to borrow within an SMSF structure is fundamentally at odds with the original intent of the FSI, which was to define a future financial system that will best meet Australia’s evolving needs and support Australia’s economic growth.”