The Financial System Inquiry’s interim report is not just about the banks. The inquiry has a surprising amount to say about superannuation, retirement incomes and financial advice. For example, the report questions whether gearing, or borrowing to invest inside a super fund should be allowed.
Most DIY fund trustees do not have enough money in their funds to buy investment property outright. In 2007, the government began relaxing the borrowing rules. While borrowing levels are low, they are increasing. Prohibiting borrowing would pull the rug from real estate agents selling investment properties to DIY super fund trustees.
The interim report said: ”The general lack of leverage [borrowing] in the superannuation system is a major strength of the financial system.” Allowing borrowing has the potential, the report said, to ”erode this strength and create new risks to the financial system”. Risk rises because just as borrowing magnifies gains it also magnifies losses.
The report also discusses the possibility of forcing retirees to use part of their retirement savings to buy a retirement income product, such as an annuity, from a particular age. That is to solve the supposed problem of retirees spending their savings and going on to the age pension.
The Financial System Inquiry also wades into the debate on financial advice, endorsing many measures advocated by the Australian Securities and Investments Commission designed to better protect consumers. These include raising minimum education and competency standards for advisers and introducing a national examination for advisers.
It also supports the regulator’s call for a public register of advisers. It is also asking whether to rename ”general advice” as ”sales” or ”product information” and mandate that the term ”advice” can only be used in relation to personal advice.
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