In a report released on Tuesday, The super challenge of retirement income policy, the Committee for Economic Development of Australia (CEDA) said the superannuation system needs to better recognise the extent to which owner-occupied housing contributes to household wealth and retirement liveability.
“People who do not own homes are exposed to the high-cost rental market and risk poverty in retirement,” the report said.
“Home ownership continues to decline among young Australians, more of whom are expected to retire without owning a home.”
CEDA said the government should recognise the role of housing in poverty alleviation and in contributing to the objectives of providing for a decent retirement and “allow first home buyers to access superannuation funds to purchase owner-occupied housing”.
This recommendation follows similar suggestions made by Treasurer Joe Hockey earlier this year and independent senator for South Australia Nick Xenophon mid-last year.
It also said the government should address housing affordability, including rental and social housing.
The report argued there is a need to address “superannuation taxation inequality”.
“The government should redesign the retirement income system. It should mandate that superannuation contributions be made from after-tax (net) income and include the family home in the assets test for the Age Pension as part of the same reform,” said CEDA.
These reforms would address equity concerns around taxation incentives, and would align the treatment of superannuation and housing – both critical determinants of a comfortable retirement.
“Given the importance of housing for retirement, another option would be to allow mortgage payments to be made pre-income tax,” said the report.
“This would allow two important components of retirement savings – superannuation and the family home – to be treated the same.”
CEDA chief executive Stephen Martin said that if the ageing population and the impact of sustained housing affordability issues are not addressed, the long-term consequences could be significant, with “an increasing number of people living in poverty in retirement and unsustainable fiscal pressure on the federal budget”.
“We already know from CEDA’s report Addressing entrenched disadvantage in Australia, released in April this year, that between 1 and 1.5 million Australians live in poverty and the elderly, particularly those who do not own their home, are an at-risk group,” said Mr Martin.
“In fact, the overall poverty rate of older people in Australia is three times the OECD average, and one of the highest.”
Since the report was released, however, the SMSF Association (SMSFA) has hit out at CEDA’s recommendations.
“Allowing first home buyers to access their super to fund their first home purchase, while well meaning, fundamentally undermines the core objective of the super system – to provide income in retirement,” said SMSFA’s chief executive Andrea Slattery.
“We recognise the importance of secure housing in retirement, but the association strongly believes that super savings should be retained for the sole purpose of providing retirement income, and housing policy challenges should not be solved through the use of retirement savings,” she added.