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Chan & Naylor has labelled the Financial System Inquiry's (FSI's) recommendation to abolish direct borrowing in SMSFs as “unhelpful” and “self-defeating
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Chan & Naylor slams Murray inquiry's SMSF recommendation
11 December 2014
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The firm said the recommendation ignores Australia’s future retirement needs and reflects the ongoing hypocrisy of the broader financial services sector.
Ken Raiss, managing director of Chan & Naylor, said abolishing the ability to leverage debt within SMSFs would restrict Australians who are proactively preparing for retirement.
"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 Mr Raiss.
“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 went on to say there are two significant industry flaws that continue to be ignored. He said the big banks’ profits are significantly derived from insurance and retirement product sales, and thus subject to an inherent conflict of interest. Secondly, Mr Raiss said the major industry and retail super funds, which have consistently criticised the ability to leverage within SMSFs, are themselves allowed to apply gearing internally by promoting managed funds with internal gearing.
“The ultimate irony is that should these funds implode for whatever reason, then it is the government who will be left to pick up the pieces via taxpayer-funded compensation arrangements.”
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According to Mr Raiss, the focus of the current government should be on restoring a healthy economy while addressing the long-term challenge of managing Australia’s future retirement cost blow-out.
"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," he said
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