Super… nest egg, not nest

No. No! NO! Ignore this nonsense about accessing super early to buy homes. It’s dumb on many levels.

Summary: Arguments to allow home buyers to tip their super balances into a mortgage are wrong-headed and ignore the long-term benefits of the super system. Comparisons with the Singaporean pension system which allows it, ignore the substantial differences between the two countries’ savings regimes. Moreover such a move would push up prices for first-home buyers.
Key take-out: A semi-regular push to allow home buyers to draw on their super balances to fund the pension are “populist claptrap”.

Key beneficiaries: SMSF trustees and superannuation accountholders. Key category: Superannuation.

Australians should not be able to access their super funds to purchase homes. Not under Australia’s current super system. Calls to do so are populist claptrap, sometimes pushed by self-interest.

To date, the calls have been ignored by governments. Hopefully that continues. But it came up during a leaders debate at the last federal election and continues to rear its head regularly in the media. Sure, it would have support among younger Australians, who are largely apathetic about their small super balances. They perhaps lack the comprehension of what will grow from a small start. “Surely, I would be better off cashing in my $25,000 super balance to buy myself a home than having it sitting in super.”

No, you wouldn’t. Save a little harder, for a little longer. You can’t have everything all at once. And industry should not be pushing this to sell a few more home loans.

For those pushing the yes case, Singapore is often touted as the example. Yes, Singaporeans are allowed to access their pension plans to purchase houses.

But Singapore’s super/pension system is very, very different to Australia’s.

For a start, the contributions that are made into their pension funds are routinely around 33-34% - nearly four times as much as Australia’s superannuation guarantee amount. Of that, 20% is mandatory savings from the employee’s salary and the remainder comes from employers.

The 20% contribution is, essentially, forced national savings by individuals.

Singapore’s pension fund is made up of three accounts – an ordinary account, a pension account and a medical insurance account. They are allowed to access the balance of the ordinary accounts to purchase a home. The actual pension fund cannot be accessed until retirement.

Contributions to Australian pension plans is, currently, 9.25%. It is all from employers. That cannot be touched until retirement.

We have no compulsory savings accounts, like Singapore’s “ordinary” pension accounts.

If the government were to make it compulsory for Australians to contribute from their own pockets to their retirement – perhaps even Singapore’s 20% – then make whatever rules you want about being able to withdrawn some to purchase property.

But Australia doesn’t. We currently contribute 9.25% to retirement savings – a level considered too low to create a satisfactory retirement, which is why it’s being raised to 12%.

One of the three Singaporean pension accounts is, in reality, a “home savings account”, as withdrawing for homeownership is popular. Home ownership in Singapore runs at about 90%.

Could we force Australians to save for their own homes? Yes, but please don’t make it the abysmal First Home Saver Account created by former Prime Minister Kevin Rudd. The FHSA was always going to be an unloved disaster, because it forced people to save for a minimum of four years. After a relatively short period, Labor itself started to unwind the scheme.

It would push up house prices

Further, accessing super to buy homes would likely have the opposite of the intended impact. It would probably make homes less affordable for first home buyers.

How? It would be little different to the various incarnations of first home owners’ grants (FHOG) that started as the GST was being introduced in mid-2000.

Free money from the government just gave first home buyers more money to leverage with the banks, which in turn pushed up prices. Many argued at the time that the gift wasn’t really to the first home buyer – the money went straight to developers and those trading up to their second homes.

Allowing access to super would have a similar impact. The money would be passed on to the same people.

Yes, it’s a little concerning that the Australian Bureau of Statistics says that only 12% of the current property buying market is first home buyers. The average is normally around 20%.

But these things are cyclical. Property prices are lower than they were two years ago. There’s something else stopping first home buyers from buying homes – it’s not affordability.

Sending the wrong messages

And it sends a message that says you shouldn’t need to struggle and save to buy a home. Just wait until your employer has contributed enough to your super fund, then raid it.

And the wrong message about superannuation – that it’s not about setting up a pool of money or assets to fund your retirement.

If this point is to be argued, then proponents must stop using Singapore’s pension system as an example.

Or ... they should argue for a system that is more like Singapore’s – force Australians to save into an account, of which a part could be accessed to purchase a home, perhaps with similar tax breaks enjoyed by superannuation.

The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E:

Graph for Super… nest egg, not nest

  • The SMSF levy should be much smaller in the May budget given the federal government's recent measures to clear a backlog of tax amendments, according Jordan George, the senior manager of technical and policy at the SMSF Professionals' Association of Australia. These measures included related party transactions, SMSF bank verification and SMSF roll-overs being included as a 'designated service'. The levy increased 36% to $259 in 2013-14.
  • The SMSF sector has welcomed the Australian Taxation Office's (ATO) new penalty powers. “Before now the ATO only had the limited options when an SMSF contravened the law of making the SMSF a non-complying fund, disqualifying the trustee, applying to court for a civil penalty or requiring the trustee to enter an enforceable undertaking,” said Andrea Slattery, chief executive of SPAA. ATO now has the power to impose administration penalties on trustees for certain breaches of the Superannuation Industry Supervision act (SIS).
  • SMSF trustees are more satisfied with their financial performance than Australians with industry or retail super funds, according to Roy Morgan research. Its January 2014 report found that SMSFs reported 73.1% customer satisfaction, while industry funds reported 54.4% and retail funds reported 52%. The results were in line with another survey by RaboDirect, which found investors are "happier and healthier" with SMSFs.

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