The new government’s promise of a hands-off approach to superannuation (for the time being) was greatly welcomed by those in the super industry as well as the broader community. Given the vast amounts of reform and change experienced in recent years, a period of consolidation is warranted.
First and foremost we need to let the changes run their course and actually achieve the objectives they were designed to achieve. Additionally, it will be very important that Australians regain their confidence in the system – much of it lost because of the constant changes we have experienced.
However, despite the government’s commitment to no unexpected and detrimental changes to super, we cannot afford to take our eye off the ball. Good governance dictates a need for monitoring of systems and legislation and acting in a measured and responsible way as and when the need arises. The Institute of Chartered Accountants in Australia (ICAA) is currently keeping its eye on two areas that it believes may need attention, and it is these areas we will be discussing with government and the regulators.
Borrowing
Borrowing has been a hot topic of discussion recently. Commentary from the Reserve Bank of Australia and some of Australia’s major regulators, including the Australian Taxation Office and Australian Securities and Investments Commission (ASIC), has highlighted a number of concerns around borrowing, including the inappropriate pushing of SMSFs in order to undertake property investment using borrowing and the threat of a housing price bubble caused by the number of SMSF investors in the property market.
These issues are considered to be risk areas and it is for this reason the ICAA will continue its push for a review of borrowing as recommended by Jeremy Cooper and his panel during their review of Australia’s superannuation system.
The ICAA believes borrowing, when used appropriately, can be a valuable tool in bolstering retirement savings. Our position at this time is not that borrowing should be removed, but as a matter of policy a review is warranted to ensure any of the risks starting to be identified do not grow out of control. We have an opportunity now, before big problems arise, to decide if borrowing is appropriate in superannuation and if it is, to make sure we have the right legislative framework around it. We cannot afford to ignore the issues being raised if ultimately they impact on the ongoing success of the SMSF sector.
The Cooper panel did not believe borrowing was consistent with Australia’s retirement incomes policy. However, many people have been successfully using borrowing to increase retirement savings. It does come with risks – it can magnify losses as well as magnify gains, so caution is warranted.
From the government’s perspective, it has a vested interest in the protection of retirement savings. It mandates that a portion of salaries and wages are directed to super, it offers generous tax concessions within super and if super were to fail, the burden of support will fall to it through the provision of the aged pension. Ultimately, if borrowing were to continue to be available within super, greater protection measures may be needed.
SMSF advice
The institute is very supportive of the work currently being undertaken by ASIC around advice to potential SMSF trustees. There is no doubt relevant, understandable and objective advice is an important part of the success of the SMSF sector. SMSFs are not appropriate for everyone and people need to be very clear about the decision they are making when considering whether they should proceed to set one up.
The challenge will be ensuring any new requirements do not bombard trustees with information and disclosures. The information will need to be concise and succinct so trustees remain engaged in the decision-making process.
The bigger challenge will be protecting consumers against advice coming from unregulated sectors. While ASIC has regulatory oversight over advice within the accounting and financial planning sectors, the same does not necessarily apply to other industries involved in the SMSF arena, particularly some administration providers and property agents. How these sectors are brought into a regulatory net remains to be seen.
We will need to make sure activity in relation to the provision of quality SMSF advice is appropriately directed to risk areas.
