Good news! Not only is it newsletter Tuesday, but the government has announced that superannuation lending regulations will not change for the next three years, particularly those for limited recourse borrowing.
A limited recourse borrowing arrangement allows an SMSF trustee to take out a loan from a third party lender. The trustee then uses those funds to purchase a single asset to be held in a separate trust.
For months now the Financial System Inquiry (FSI) has put pressure on the government to change the current regulations that allow for limited recourse borrowing. Earlier this year FSI stressed that focus should be shifted to the objective of superannuation funds as a savings vehicle for retirement rather than a ‘broad wealth management vehicle’. The FSI believes risk to the finance system increases significantly when limited recourse borrowing occurs.
Over the past week the government has responded to the FSI recommendations, and as mentioned above it’s good news! The government will now begin to monitor leverage and risk in the superannuation industry through the Council of Financial Regulators and the ATO. The government plans to develop legislation within superannuation law that will highlight the objective and fundamental purposes of superannuation. This will serve as a guide for policy makers, the community and the industry.
The Australian superannuation industry is made up of approximately 16,000,000 super accounts. The GFC changed the way we view our super, disabusing Australians of the belief that their super balance will help them retire comfortably. Equally as important, it led to a movement toward Australians seeking more control of how their super is invested. Between 2007 and 2012 six million Australians would have been better off keeping their super money in cash at face value!
With a number of Blue Wealth clients purchasing through self-managed super funds, the government’s response to the FSI allows many more of our clients to benefit from the opportunity to control their own wealth through educated research based investment property purchases.