Jarickson works with many clients on protecting their Self Managed Super Funds (SMSF Protection). There are many people with a SMSF who may need to know some hard facts in order to take advantage of it leading into the latter years facing retirement.
The biggest risk facing investors is that their retirement savings will be inadequate. Recent studies suggest that 76.1% of singles and 41.9% of couples aged 41-65 will run out of savings in retirement.
The median single will have to live a whopping 17 years without savings.
In that context, the current debate on borrowing within SMSFs (aka Limited Recourse Borrowing Arrangements or LRBAs – What on earth does this mean?) is a sideshow. Here are three facts about LRBAs.
1. Gearing is a useful tool for some investors. Gearing is an investment strategy that magnifies gains and losses. It benefits some investors and is totally inappropriate for others. Ideally, investors who gear should do so with the assistance of a good financial adviser.
2. SMSFs are NOT rushing into gearing to buy property. Contrary to some media speculation, SMSF investors are NOT borrowing in large numbers to purchase property. The latest ATO SMSF figures are from 30 September 2013. They show that LRBAs are just 0.49% of SMSF total assets; actually down from 0.53% at the same time a year earlier.
What’s more, SMSF exposure to both residential and non-residential property is also down on the previous year (sitting at just 3.50% and 11.72% respectively).
3. The regulators are still playing catch up. The purchase of property is excluded from the AFSL licensing regime by s763B of the Corporations Act. This creates an opportunity for unlicensed property spruikers to take advantage of investor ignorance to their own benefit. Serious thought needs to be given to how the exclusion should apply in the brave new world of SMSFs and LRBAs.
Article Published in No More Practice – ‘Borrowing in SMSF’s – Beauty or Beast’
Written by Chris Andrews is the Vice President, Head of Funds Management at La Trobe Financial.
Jarickson does not offer advice in relation to any form of finance, property or SMSF advice. You should seek the advice of professionals in that particular profession. This article does not take into account your needs or objectives.