By Paul Rickard

Thank goodness for the Committee for Economic Development of Australia (CEDA) for reigniting the debate about superannuation and housing affordability  – and making the sensible suggestion that first home buyers should be able to access their super to purchase owner occupied housing.

However, given the usual rush to condemn the idea – from Shadow Treasurer Chris Bowen through to the vested interest lobby groups (aka the super industry) – don’t expect this idea to go anywhere too quickly.

So I say to anyone under 40 who doesn’t own their own home, forget super. Why would you want to lock away your money for at least 20 years, and more likely 25 years or even 30 years, which is what it will be when the preservation age is next changed, when the alternative, investing outside super in the family home, is capital gains tax free and critically, exempt from the age pension assets test.

Superannuation can be a dumb idea. Don’t put any extra funds into it, and potentially, talk to your employer about salary alternatives to ‘ordinary times earnings’. Channel any extra dollars into building up that deposit for your first home.

Sure, superannuation is a tax effective savings vehicle, but it is not always the best option. Moreover, as CEDA has recognized, home ownership is a fundamental pillar of the retirement incomes system.

CEDA’s call to boost housing affordability

CEDA says that the retirement income system needs to recognize 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. For the over 65s, they cite the massive disparity in wealth between renters and homeowners – for the former, less than one quarter of the wealth of the latter, the high contribution that housing makes to overall wealth, and falling home ownership rates.

Home ownership rates by age , 1991 to 2011

They say that an increasing number of retirees do not own their own dwelling and live at the mercy of the expensive private rental market in low economic resource households, and this number is likely to grow rapidly over the next 40 years

CEDA says that the Government should recognize the role of housing in poverty alleviation and in contributing to the objectives of providing a decent retirement. It recommends that the government:

  • Address housing affordability, including for rental and social housing; and
  • Allow first home buyers to access superannuation funds to purchase owner occupied housing.

Making super more relevant

In addition to declining home ownership rates and the important role housing plays in retirement liveability, another reason for allowing first home buyers to access their super is to help make super more relevant. I have argued this before in Switzer Daily.

With Sydney and Melbourne house prices, in particular, at such high levels, the deposit gap is a huge challenge for many young Australians. Raising the 20% deposit of $80,000 on a home worth $400,000 (well below the median house price in those cities) is no small ask – and if part of a super balance can help here, then I say go for it.

More importantly, the argument for doing this is about making super more relevant.

Why does super need to be relevant?

Without a purpose, it doesn’t have value. For a 25 year old who faces the prospect of retirement at age 70 or 75 (in 50 years’ time in 2065), super adequacy is a problem that is in the “never never”. There are far more pressing priorities, like finding a place to live, and life challenges, to come.

Secondly, it will encourage young Australians to think about their super – how the funds are invested and how many super accounts they have. The fact that there are almost three super accounts for every working Australian tells us how relevant super isn’t.

Finally, it will put pressure on the high fees charged by our super managers. More interest by superannuants means more scrutiny on the super managers and ultimately, downward pressure on fees. Further, young adults might start to question the absurd proposition of life insurance that many are forced to take and pay for – despite not having a dependent in sight.

How would early access to super work?

There are several models about how early access to super might work - here is my effort. Importantly, it is not open slather, and it is capped.

Firstly, the amount a young adult (under 35) could withdraw would be capped – say a lifetime limit of $25,000. And they wouldn’t be able to withdraw their entire super – the amount taken for a deposit would be no more than 50% of their super balance.

Next, the amount withdrawn would be paid directly by the super fund to the property vendor. Finally and importantly, the super fund would take out a charge on the property – let’s call it a ‘super caveat’ or ‘second mortgage’, such that if the property was sold, the super monies would be returned in full to the super fund before any monies from the sale were repaid to the member.

What are the arguments against?

Setting aside the argument that it is not the purpose of the super system (which to me sounds like one generation paternalistically lecturing the next generation), the other arguments raised are that it will crush a person’s super savings in retirement and it could inflate an already hot property market.

The former is put out by the super industry lobby, who of course abhor anything that might upset the super fee gravy train. They produce some pretty horrific numbers that assume that the funds will be lost forever to the super system – usually for 40 years, and ignore the fact that the average mortgage turns over every four years and Australians move home every seven years. Under my model, if the house was sold or mortgage discharged, the super fund would be repaid in full.

And will accessing super really inflate a booming housing market? Well if any of the scare mongers had bothered to look behind the numbers, they probably would have come to the conclusion that whatever pressure there will be, it is some way down the track and not that impactful.

According to APRA¹, the average superannuation balance for a person under 35 is $9,487. If they hold three accounts, this puts the balance at $30,000. A 50% cap would see $15,000 available for the deposit – less than the First Home Owners’ Scheme and a long way short of the $80,000 deposit needed.

And if they started from scratch – earned $100,000 per year and their employer contributed $9,500 into super, after contributions tax of 15% and earnings of 7% pa, it would take almost eight years to get to a balance of $80,000 (and these are way outside my limits of $25,000 and 50%).

Any impact on the property market is going to relatively minor and some way (years) down the track.

I am with CEDA

Stop the scaremongering. Let’s start thinking a little more strategically about Australia’s retirement incomes policy and its three components – super, the pension system, and savings outside super. Home ownership is a critical part of retirement livability and should be encouraged. User relevance is a critical part of any compulsory system, and is almost important as the system itself. Both of these goals will be supported by allowing first home buyers to access their super savings.

¹ APRA Superannuation Bulletin, statistics for YE 30 June 2013