In an election campaign speech on Sunday (15 May), Prime Minister Scott Morrison announced a proposal to enable first home buyers to use up to 40 per cent of their superannuation, up to a maximum of $50,000, to help with the purchase of their first home.
The scheme would apply to both new and existing homes, with the invested amount to be returned to their superannuation fund when the house is sold, including a share of any capital gain.
The Australia Institute of Superannuation Trustees (AIST) has raised serious concerns about the potential impact of the proposed policy, stating that it would “undermine the core purpose of superannuation system”.
AIST chief executive Eva Scheerlinck said the use of super as a deposit would drive up property prices, leaving Australians with higher debt and depleted retirement savings.
“First home buyers are being asked to choose between a home and saving for their retirement, they should be able to have both. The Australian government must address this modern-day inequity by addressing supply issues rather than raiding super. A first home should not come at the expense of dignity in retirement,” said Ms Scheerlinck.
Ms Scheerlinck stated that the policy would significantly reduce asset diversification by further concentrating Australians’ savings in residential property while doing nothing to address the fundamental challenges of saving for a home, such as stagnant wages and rising inflation.
More needs to be done to address the supply of housing, and superannuation should not be the “go-to” to fix systemic problems that are the responsibility of the government to address, she stressed.
“Superannuation was established to provide support for Australians in retirement and it is not a piggy-bank the government can open at its convenience to avoid dealing with the real systemic issues facing first home buyers,” she stated.
Financial Services Council chief executive Blake Briggs similarly outlined concerns that the proposal “weakens the sole purpose of superannuation, which is to provide higher standards of living in retirement”.
“The FSC recognises there is a correlation between renting in retirement and poverty amongst older Australians, but Australians should not have to choose between a home and their retirement savings,” said Mr Briggs.
“The government’s own majority report into ‘Housing affordability and supply in Australia’ concluded that superannuation should only ever be used for housing if there were commensurate measures to increase supply.”
The FSC noted that while 1.3 million households will now be eligible to make downsizer contributions, there are approximately 5.3 million under 35-year-old Australians that do not yet own a home access their superannuation to buy a first home.
“The government has an obligation to do more to boost supply, otherwise unleashing superannuation savings on the housing market risks driving prices higher still,” said Mr Briggs.
Association of Superannuation Funds of Australia (ASFA) noted that none of the comprehensive reviews of superannuation had recommended the early release of superannuation for housing deposits, while several have made recommendations to the contrary.
An ASFA report released in March 2021 stated that the early release of superannuation for housing deposits is fundamentally inconsistent with the objective and central principles of superannuation.
ASFA stated that the direct effect on the housing market of early release of superannuation for housing deposits is that increased purchasing power “would be near fully capitalised into higher house prices, exacerbating the upswing of the current house price-credit cycle”.
Industry Super Australia (ISA) has also been critical of the proposal, stating that it would add tens of thousands of dollars to housing prices.
Modelling undertaken by ISA estimates that it could see a hike in the nation’s five capital median property prices by between 8 and 16 per cent.
“The proposal is not what super was set up to do and would torpedo super fund investment returns for all Australians – forcing funds to carry more cash and be less able to invest for the long term – which has been the key in delivering members’ bigger nest eggs,” it warned.
ISA modelling has estimated that allowing couples to take just $40,000 from super would send property prices higher in all state capitals, but the impact would be most severe in Sydney, where the median property price could lift a staggering $134,000.
Industry Super Australia chief executive Bernie Dean said throwing super into the housing market “would be like throwing petrol on a bonfire”.
“It will jack up prices, inflate young people’s mortgages and add to the aged pension, which taxpayers will have to pay for. Super is meant to be for people’s retirement, not supercharging house prices and pushing the home ownership dream further away,” said Mr Dean.
“Not only will it lock young people into hugely inflated mortgages without any requirement for their own deposit, it will torpedo investment returns for everyone leading to everyone having far less at retirement.”
I am no expert in superannuation but a better idea would be a loan from the superannuation fund secured by a Division 7A type loan agreement with a secure loan agreement, Division 7A interest rates and a second mortgage on the property.
What happens if the sky falls on our head? What happens to super in a GFC – especially to those who have just retired. For the small percentage of first home buyers that become bankrupt then yes the funds from super put into their house maybe at risk. All investment (including investments made in super is at risk). Perhaps the government can legislate that the super invested has a priority claim (other than over the first mortgagee) prior to other creditor claims.
So it’s like an exempt in-house asset (if in an SMSF)?
Where does the super fund’s priority sit in the event of bankruptcy, or even a housing price crash where there aren’t enough funds to pay out the mortgage and repay the super fund? Mortgagee in possession only cares about getting their money back, not about getting the best price for the borrower.
What if I use this scheme to buy a house and sometime later move, rent out this premises and buy another property to reside in?
Do the funds ever have to be repaid if I buy and never move – ie does it get paid back to the fund out of my estate? How is it assessed?
Ms Scheerlinck seems to contradict herself. If property prices are driven up by this policy, and that is speculative given all it really does is modestly bridge the deposit gap more quickly and people will still only be able to borrow what they can afford to repay (as opposed to the opposition’s policy which gives some people money they would otherwise never have had to purchase a home with), how will it lead to retirement savings being depleted (fees v income equation aside) if the principal plus proportionate share of capital growth is returned to the fund?
Can an SMSF be involved with this scheme? It would surely require massive changes to the SIS regulations to allow a member of an SMSF to borrow. I pity the SMSF Auditor who will now also have to check that the SMSF has properly documented the loan, caveat and/or second mortgage. Audit fees will rise…
Isn’t the problem a supply problem as well? We don’t have sufficient numbers of dwellings available to meet demand. If the Government approached this from a totally different perspective they could achieve multiple wins. Here is the plan. State Governments take on sizeable numbers of apprentices under their various construction agencies (electricians, plumbers, cabinet makers, block workers etc). State Governments, with Federal Assistance/funding embark on sizeable housing projects. The properties target first home owners/affordable housing recipients. By flushing the market with supply of qualified tradies AND houses, the labour costs for construction should generally flatten a little, to hopefully stop surging prices AND there will be more affordable housing available.
It isn’t a quick fix, which is probably why neither party are talking about it, but it should ease the supply problem and generally drive down costs over time. I am sure some economist could model this and show it worthy?
The government tried similar by funding affordable housing schemes. This only approached the problem from one side. The owners were NOT the occupants and they were generally left with properties worth less than what they cost.
Leave super for retirement. Don’t start tinkering with the Sole Purpose for having Super. And STOP the government getting the citizens of Australia to spend their money to get the Government out of a hole because the Government are too short-sighted!
You can flood the market with qualified tradies all you want it won’t get houses built any quicker – there’s a huge shortage of materials. Timber & steel are both greatly scarce at the moment and when you can get enough the cost is enormous.
If the invested amount is to be “returned to their to their superannuation fund when the house is sold, including a share of any capital gain.” then no adviser should recommend it as a strategy. At sale time the house sellers are extremely likely to need the money to either buy a replacement house or to repay the bank. The sale may come about because of job loss. This looks reckless.
This proposal would not add a single house to the market.
Having to keep detailed records of the main residence so as to calculate the Capital Gain will be a real pain. Every dollar must be recorded, and the receipt kept. Council rates, Interest, insurance, painting, new appliances, the kitchen reno, a box of nails to fix the fence, landscaping – all must be documented, and available to the ATO auditor for 5 years after the tax return is lodged. That adds up to a record keeping nightmare!
It is an ideological divide between Labor’s unmovable support for compulsory super and Liberal’s support for freedom of choice. The system hasn’t matured as yet and the impact on the state pension system is yet to be revealed, particularly as the largest generation is in the process of retiring and have longer life expectancies etc.
Until they promise of “bank now” for a better (very long term) future is demonstrated, super will be a too tempting pot of gold to be ignored.
The issue is supply, not demand and this tap your super for a deposit is just adding to the demand side and doing little for the supply.
If anything, the extraordinary amount of capital in the system could be utilised for long term investment in social housing etc whilst all the time providing an appropriate return to investors. (There are fund managers in this space.)
If ‘the best way to enjoy a comfortable retirement is to own your own home’, we have not progressed any further than our grandparents – strive to own your home by retirement, if not, use super to pay out the mortgage and then collect the full state pension. Life’s good. (It was the stock of trade for financial planners).
Assessing some of the main residence for aged pension eligibility is desperately needed.
The state pension and home ownership seem to be unassailable rights in Australia. Super needs to reach that mantle also but won’t whilst ever a myriad of “buy now, pay later” measures are implemented to tap it before time.
This article looks like something worthy of Sir Humphrey Appleby. Clearly words from an industry that thinks the money belongs to them. If there is one thing that gives a person dignity in retirement, it is owning a home debt free in retirement so as not to be paying out massive rent and having to regularly move at the whim of others. Surely buying a house early in life will produce a huge asset at retirement. I bought my first house in the 70s for 30k. It’s now worth a million and I’m debt free and not paying rent. Having to put the money back in super plus a share of capital gains should the house be sold before preservation age is a great move to ensure retirement savings will not be affected. It’s a weak argument to say allowing young people to buy a house will push up property prices when investors can use ALL their superfund to buy multiple investment houses with the only requirement being they can’t rent them to family or friends. This policy is a great step to securing people’s retirement. My only concern is that it might be a non core promise.
The idea is awesome. Using your super to invest in property whilst enabling someone to purchase their first home sooner. Those who enter retirement owning their own home are in a lot better financial shape than those that are renting. As a first home buyer you will be more likely to salary sacrifice as much as possible into super, save tax and save for a house.