A superannuation slap?

Stand by for broken promises on super, probably in property.

Summary: Treasurer Joe Hockey says there won’t be any changes to super in the next six months, but this is a far cry from the incoming government’s promise of “no negative unexpected changes to super”. A number of politicians have suggested allowing access to super for first home purchases, which would most likely make homes more unaffordable. Assistant Treasurer Josh Frydenberg believes there needs to be some change to limited recourse borrowing arrangements.

Key take-out: ASIC has unveiled further actions against property spruikers in recent weeks. If the regulator can stop advisers from using lure tactics, I’ll be heading the cheerleading squad.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Given a choice between being slapped in the face and not being slapped in the face, I’ll take the latter.

As I’m sure you would. Particularly if you weren’t aware that a slap was on the menu. (Seems to have been added as a “special”.)

But the impending threat of a superannuation slap, delivered as a broken election promise, became more likely last week when Treasurer Joe Hockey said that there wouldn’t be any changes to superannuation in the next six months.

That is a far cry from “no negative unexpected changes to super” in the first term of office, as promised by the incoming Abbott Government pre-and-post the last federal election. The next election must be held by 14 January 2017, nearly two years away.

Six months from now would be, roughly, football finals time this year.

No matter the pre-election promises, change to superannuation is clearly on the Abbott Government’s menu. However, it’s possible that changes might be announced, but not implemented until after the next federal election.

What’s likely to happen? Given the current passage of bills through the Senate, probably nothing.

But all the “finance guys” have been dropping hints. Joe Hockey, Finance Minister Mathias Cormann and even Assistant Treasurer Josh Frydenberg.

They seem to have a rather strong focus on property.

And there seem to be three main targets. Two of these would be disappointing. But the third change is something I’ll be cheering on.

Change 1: First home buyers

Just when you thought this dumb idea was dead and buried … Joe Hockey has again raised that consideration should be given to allowing (young) Australians to access their super for their first home purchase. (For more on first home buyers, see Robert Gottliebsen’s article today: Outer suburbs wedded to value.)

I’ve debated this before. It was raised mid-last year when Senator Nick Xenophon said that he was considering a private member’s bill in support of the idea. The usual people support it – mortgage brokers and property developers. The usual people pooh-poohed it – financial advisers and superannuation funds.

(Declaration: I’m a mortgage broker, financial adviser and investor in properties that are likely to appeal to FHBs, so I am potentially “conflicted” in many ways, mostly positively. But I’m absolutely in the “no” camp on this one.)

As a “housing affordability” measure, allowing people to access their super makes no sense. It would do almost the opposite of the honourable member’s intentions – it would most likely make homes more unaffordable for first home buyers, as I raised here (see Saving SMSFs from the spruikers, August 6, 2014).

It would probably aid SMSFs who are already in the market. If an SMSF has bought property that might appeal to FHBs, they would most likely benefit from an equity uplift.

First home buyers already get a huge leg-up into property, predominantly through stamp duty concessions. Handing FHBs more money would only put upwards pressure on home prices. This would benefit those who are selling those properties to them – namely Gen Xers, Boomers and developers of that style of property.

And Prime Minister Tony Abbott said it was an idea worth considering. Good grief. For anyone seriously interested in the likely impact, both on property prices in the FHB category and the likely impact on superannuation balances for those who use it, google what Canada has done. Disaster.

Change 2: LRBAs

The second concerning change regards limited recourse borrowing arrangements, or LRBAs.

Frydenberg, among others, believes that there needs to be some change to LRBA arrangements. David Murray’s Financial System Inquiry said they had concerns over LRBAs, which shouldn’t be allowed to grow too much. While the level of investment is small now, the potential danger to the superannuation system from high gearing levels is a major concern, goes the argument.

No. In the main, those who understand property investment (outside of super) have probably got a pretty good idea of how to make a geared property investment work inside super.

The theory is fine. For those properly prepared, leveraged investments can generally work well. This applies whether the investment is shares or property – but the fact is that most leverage in super funds is in the property market, because the rules surrounding bare trusts make geared share investments too difficult/expensive, while those geared investments that DO NOT require bare trusts often come with interest rates for SMSFs that make returns very difficult.

Change 3: Cracking down on the “property advice” area

Absolutely. ASIC has unveiled further actions in recent weeks against individuals in the property industry that are looking for suckers (and who have had no problems finding them), particularly in the SMSF space.

Not everyone who can open an SMSF should. I don’t know how they would do it, but if ASIC can find a way of stopping property spruikers from lure tactics, usually at the leadership of developers who offer all-in-one solutions to buying geared direct property in super, then I’ll be heading the cheerleading squad.

A bad property investment has the potential to completely stuff your super. And too many people are being lured into patently rubbish property.

ASIC can’t legislate to say that advisers/spruikers may only offer “quality property” to SMSFs. But they might be able to do something.

Financial advisers ARE being offered ridiculous incentives to get their SMSF clients into property in super. (I know, because I bat these people away about once a week.)

As a recent industry article said, advisers (which, sadly, includes financial advisers, accountants, lawyers and mortgage brokers) are being offered 5-10 per cent of the property’s sale price as a commission to help sell these properties.

If you buy a half-million dollar place, ask your “adviser” what they are being paid. There’s a reasonable chance that they are being paid up to $50,000 for a phone call referring you to the developer.

Who’s paying for that? If you don’t know the answer to that question, you most certainly should not be buying a property in your SMSF.


The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au. Bruce’s new book, Mortgages Made Easy, is available now.

  • The Australian SMSF Members Association has backed calls to allow first home buyers and their parents to use some of their super savings as house deposits.

“We would see it as an investment,” ASMA executive director Simon Makeham told The Australian Financial Review. “It’s not a free gift. It would actually be a loan to the children, whereby there is a modest but genuine interest payment back to the superannuation fund.”

  • The SMSF Association has criticised proposals to use super for purposes other than providing retirement income.

SMSF Association CEO Andrea Slattery called for bipartisan support for the retirement income goal of super, saying it was time to stop looking for other ways to use the savings pool.

“Superannuation was established to allow people to be self-sufficient in retirement, and not as a cure-all for every public policy issue that arises,” she said.

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