The Association of Superannuation Funds of Australia (ASFA) has made clear to a parliamentary committee that it is opposed to a proposal to allow life insurer statutory funds to be mortgaged.
Answering a question on notice resulting from a public hearing of the Parliamentary Joint Committee on Corporations and Financial Services Life Insurance Inquiry, ASFA made clear it was uncomfortable with the proposal attributed to the Financial Services Council (FSC).
Further, ASFA said it was not aware of any superannuation funds mortgaging assets held in their statutory funds.
The ASFA response said Australian Prudential Regulation Authority (APRA)-regulated superannuation funds gained indirect exposure to leverage through managed investment schemes, derivatives, property trusts and similar investment vehicles that had some form of leverage embedded into their structure.
“By way of example, many property vehicles are leveraged, usually around 30 per cent, to provide liquidity across a portfolio of what are ‘lumpy’ assets,” it said. “This type of investment is acceptable for superannuation investors, particularly as part of a diversified portfolio.”
The answer said that direct leverage involving the mortgaging of specific assets in superannuation was largely confined to Self-Managed Superannuation Funds (SMSFs).
“It is important that the superannuation system as a whole does not allow significant exposure to particular risks that may work against the overall stability of the financial system. Further direct leverage of superannuation assets needs to be carefully considered in this context,” the ASFA response said.
