Just days after law firm Slater and Gordon announced that it is looking into the possibility of bringing a series of class actions targeting superannuation funds owned by financial services companies - including the fund operated by CBA-owned Colonial First State - the big four bank has announced that it is to cease new lending for self-managed super fund (SMSF) loans next month.
From the close of business on 12 October, CBA will cease accepting new applications for its SuperGear loan, a limited recourse loan that allows SMSF trusts to purchase a property (or refinance an existing eligible loan for an investment property) while taking advantage of superannuation tax concessions.
The bank has said that it will continue to support existing SuperGear Loan accounts and will be writing to these existing customers to let them know that there will be no change to their existing loan arrangements.
A CBA spokesperson said: “As part of our strategy to become a simpler, better bank, we are streamlining our product portfolio and have taken the decision to discontinue our ‘SuperGear’ lending product which enabled investment in residential and commercial property through self-managed super funds.
“These changes will be effective from close of business on 12 October 2018. We will continue to support our existing customers who have these loans with us.”
The move means that, as of next month, none of the big four banks will offer new business SMSF loans for residential property*.
ANZ never really played in the space while NAB stopped offering SMSF loans for residential purposes in 2015.
Westpac announced in July of this year that both it and its subsidiaries would also be “streamlining” their product offerings and no longer offer self-managed super fund loans for new consumer or business lending.
Other changes this year include AMP withdrawing its interest-only terms on its SuperEdge SMSF home loan product last month “in response to recent market changes” and as part of the bank’s focus on “managing its portfolio responsibly while balancing this with the needs of [its] customers, shareholders and regulators”.
SMSF loans and advice have been under scrutiny recently, after a case study aired during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry suggested that the bank had given “inappropriate advice”.
Further, a recent review from the corporate regulator found that 90 per cent of SMSF advice does not comply with best interest obligations.
ASIC released a scathing report earlier this year which found that 90 per cent of SMSF advice does not comply with best interest obligations.
The findings of ASIC’s Report 575: SMSFs: Improving the quality of advice and member experiences, indicated that in 10 per cent of the files reviewed, the client was likely to be significantly worse off in retirement due to the advice.
It also found that in 19 per cent of cases, clients were at an increased risk of financial detriment due to a lack of diversification.
In recent years, SMSF lending has come under scrutiny, with concerns coming to light through the findings of the Financial System Inquiry (FSI) in late 2014, which urged the government to prohibit certain SMSF borrowing arrangements.
The FSI panel recommended a removal of the exception to the general prohibition on direct borrowing for limited recourse borrowing arrangements (LRBAs) by superannuation fund.
The coalition government did not move to implement the recommendation. However, the Labor opposition has expressed support for such a measure and has promised to ban direct borrowing by SMSFs as part of its new housing affordability package.
*This article was updated on 18/09/2018 to reflect that the changes mean that the majors are no longer offering SMSF loans for resi purposes.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.