Financial System Inquiry Superannuation

The Murray Financial System Inquiry suggested that the Global Financial Crisis highlighted the strong role that the large pool of superannuation capital had in its “unleveraged capacity” in providing assistance and stability to the capital markets and broader economy at a time of high stress. The Inquiry goes on to say that the sharp increase in leverage in the superannuation system, although still low in the overall value of superannuation, if continued at this accelerating rate will reduce  the superannuation systems capacity to be that stabalising influence in the next financial crisis. As a result the Murray inquiry into the Financial System recommends that future borrowings should not be allowed in superannuation.

It also goes on to say that the risk of borrowings in superannuation and particularly in Self Managed Superannuation funds passes the risk of the strategies back onto the community as if the leveraged investments do not perform as they should in superannuation funds then the obligations falls to the taxpayer to fund the investor by way of age pension benefits and that is not fair to the community at large.

Following the GFC you dont have to go to far to find someone that borrowed money to invest in an asset that has lost 50 or 60% of its value or more and the problem they have is the debt is still there needing to be repaid. The recommendations from the Financial Services Inquiry will not stop people investing in assets that lose some or all of their money however in the future after an investment has performed poorly you wont have to repay a loan as well.

It is important to note that there has not been large leveraged losses in the superannuation system to date and this is a recommendation designed to take away that risk before it becomes an issue. Eg prevention is better than cure.