Risk of SMSF lending issues is ‘remote’

Speaking to Mortgage Business’ sister publication, SMSF Adviser, PIPA chair Ben Kingsley said he considers the risk of limited recourse borrowing arrangements (LRBAs) creating any mass problems for SMSFs to be remote, and that issues around borrowing should be addressed in other ways first.

“Let’s start with educating SMSF trustees first by making sure they understand the risks associated with incorporating borrowing into their investment strategies,” said Mr Kingsley.

“Secondly, let’s put some better regulation around the investments they are trying to borrow money on – for example, if they are looking to borrow money to invest in direct property then let’s regulate advice on property investment.”

Mr Kingsley said the government should also be looking at some of the other mechanisms on the lending side that can be changed.

“I would be encouraging lenders to remove the personal guarantee obligation which will then remove risks for the super fund as it removes any further obligation of the trustees or the individuals who are providing those guarantees,” he said.

“Obviously the banks may need to address their pricing in terms of the interest they charge clients by removing that risk, but that would be another solution outside of just putting a ban on lending inside a super fund.”

Restricting SMSF trustees from using LRBAs, Mr Kingsley said, is giving consumers less opportunity to be able to invest for a self-funded retirement.

“The goal of super isn’t necessarily just a savings vehicle; it’s an investment vehicle to allow people to provide for a self-funded retirement to take the pressure off government to provide for people in their retirement,” he said.