In this our last newsletter for the year, we review the final report of the Financial Services Inquiry, which contained some concerning news for those with Self-Managed Superannuation Funds who are thinking of borrowing to buy property. Our newsletter also contains our office closing times for the Christmas break.

You can read the full version here.

The Financial Services Inquiry (FSI) headed by David Murray has handed down its final report. The report included a recommendation that direct borrowing by superannuation funds should be abolished.

Currently, borrowings are allowed as a part of a superannuation strategy under limited circumstances. This can be beneficial when, say, looking to buy property as a part of an overall wealth creation plan.

For those in business, there are good structural, tax and asset protection reasons for buying property in superannuation, particularly when it involves a business premises. Often, however, the balance in super alone is not sufficient to acquire a more costly asset like a property. Even if it were, having a significant proportion of member balances tied up in one asset may not be ideal, from a diversification and risk management perspective. Borrowing within super expands the investment possibilities with respect to property.

The FSI, however, is concerned that too much borrowing within the superannuation sector as a whole increases the risk to the financial system. Overall, borrowings are currently relatively low, however they are increasing, and it is suggested that this could potentially have a destabilising effect. Further, the report suggests that superannuation should first and foremost be about saving for retirement, not generating wealth more broadly.

Although by no means law yet, the Government is likely to implement some of the recommendations of the report. Those with self-managed superannuation should watch this space closely, especially those who may have intentions for using it to buy property in the future through borrowings.