‘Unlock SMSFs capital to help grow Australian Economy’: SPAA to Murray

The SMSF Professionals’ Association of Australia (SPAA) has urged the Australian government’s Financial System Inquiry (FSI) to look at ways the growing SMSF capital pool can be unlocked to help fund productive Australian investment that benefits the real economy.

Specifically, SPAA has nominated investment in Australian infrastructure and loans to corporate Australia, via a more developed corporate bond market, as two key avenues where this sentiment of harnessing the SMSF savings pool can be best realised.

SPAA’s submission to the FSI notes that the superannuation sector currently holds $1.8 trillion in retirement savings, with SMSF accounting for around a third of this figure.

Over the next 20 years the SMSF sector’s asset holdings will grow to exceed $2 trillion, making it a source of capital funding too large to ignore in considering Australia’s future.

SPAA Senior Manager, Technical and Policy, Jordan George, said SPAA believes the SMSF sector should be viewed as an important source of capital for future Australian investment, both public and private.

“Opening up direct infrastructure investment to SMSFs could assist SMSFs in managing longevity risks, while also funding Australia’s future investment needs, said Mr George.

“Infrastructure investments act as an important investment class that offers a risk-return point between cash/fixed-interest and equity investments.

“SMSFs are currently limited in investing in infrastructure due to high dollar threshold and the illiquid nature of the investment.

“Unitising investment in infrastructure projects to smaller investments, say for example, $25,000 and developing secondary markets could overcome current barriers to investment by SMSFs in the sector.

“Also, the deepening of and providing access to the corporate bond market for SMSFs would allow SMSFs to diversify their low risk holdings and allow Australian corporates to reduce dependence on overseas debt funding.”

In its submission SPAA also raises the possibility of SMSF’s participating in the financing of housing via instruments such as shared appreciation mortgages and shared equity arrangements.

Investment in housing would provide an investment with low investment correlation to existing asset classes, enhancing portfolio construction and increase the efficiency and competition in the home loan-financing sector, benefiting all Australian consumers.

The SPAA IFA submission notes the SMSF sector plays a significant role in diversifying assets held in the superannuation sector, reducing systemic risk in the superannuation sector and broader Australian financial system.

The submission also explains that there is no risk to the financial system posed by SMSF borrowing and property investment.  The SPAA submission notes the very low level of Limited Recourse Borrowing Arrangements in the sector, accounting for just 0.49 per cent of SMSF assets, and suggests this does not indicate excessive use of such arrangements.

SPAA has suggested the provision of independent and quality financial advice can be improved by changes to Australian Financial Services license regime.

“Consolidation and vertical integration has seen a reduction in competition and independence in the advisory market.

Accordingly SPAA believes the creation of a separate licensing category for independent advisors that have achieved higher competencies or specialisation than general authorised representatives is desirable.

Finally the SPAA submission strongly supports the existing regulatory settings including the Australian Taxation Office’s role as the primary regulator of the sector.