The Federal Government should use the May Budget to restore the general prohibition on direct borrowing by superannuation funds, according to the Association of Superannuation Funds of Australia (ASFA).
In doing so, ASFA has pointed to an almost exponential increase in the amount of funds borrowed leveraging Limited Recourse Borrowing Arrangements (LBRAs).
The ASFA has used its pre-Budget submission to point out that it has had a long-standing policy of opposing borrowing by superannuation funds and that the ban was something which was supported by the Financial System Inquiry (FSI).
“… the use of LRBAs by superannuation funds is not appropriate,” the submission said.
“The amount of funds borrowed using LRBAs has increased substantially, from $497 million in June 2009 to $25.4 billion in June 2016, an increase of around 5,000 per cent,” the ASFA submission said.
“Borrowing, even with LRBAs, magnifies the gains and losses from fluctuations in the prices of assets held in funds, and increases the probability of large losses within a fund. This puts individuals’ superannuation at risk,” it said.