Why Your Super Could Be the Key to Owning a Home Sooner

Why Your Super Could Be the Key to Owning a Home Sooner

The debate surrounding early access to superannuation for housing deposits has grown as housing affordability challenges continue to mount. Recently, the Grattan Institute’s housing policy expert, Brendan Coates, argued that "workers are compelled to over-contribute to superannuation and should be allowed to cash out anything above 8 per cent of wages" to allow people more choice. Speaking at the Australian Financial Review Super & Wealth Summit, Mr. Coates stated, “The best model is to basically allow people to cash out anything above about 8 to 9 per cent of wages each year at tax time, and have those withdrawals be added to their taxable income and taxed as wages.”

Echoing this sentiment, shadow treasurer Angus Taylor contended that early super access could prevent some Australians from becoming “forever renters.” According to Taylor, “A compulsory retirement system that ignores home ownership flies in the face of all evidence about the importance of home ownership to retirement outcomes. The challenge of supporting home ownership is too big an issue to exclude solutions. We cannot condemn a generation to forever renting.”

In contrast, Daniel Shrimski, managing director of Vanguard Australia, and other financial experts warn against accessing super for home buying, advocating instead for housing incentives. Shrimski highlighted that 85 percent of homeowners feel confident about retirement, compared to just 45 percent of renters, calling attention to the impact of housing insecurity on financial well-being in retirement.

Alternative Solution: Superannuation-Backed Deposit Loan for First-Home Buyers

Rather than allowing early withdrawals of super contributions, an alternative approach could be to permit superannuation funds to provide a loan for a home deposit, designed to offer housing accessibility without diminishing retirement savings. Here's how this could work:

  1. Loan Structure and Rate:

    • Superannuation funds would lend the deposit at a rate equivalent to the average balanced investment option, typically around 6.19%. This approach mirrors the typical return on a balanced super fund, ensuring that superannuation balances remain on track with investment growth rates.

  2. Repayment and Refinancing Timeline:

    • Borrowers must refinance and repay the super loan within 15 years, aligning with typical property cycles and allowing homeowners to build substantial equity. Partial repayments can be facilitated through salary-sacrifice contributions using pre-tax dollars, making the process affordable while allowing retirement savings to recover.

  3. Home Status and Sale Restrictions:

    • The property must remain a primary place of residence (PPR) during the loan term, with restrictions on sale or conversion to an investment property until the loan is fully repaid, ensuring it is used solely to support homeownership.

  4. Generational Considerations:

    • Compulsory superannuation is still relatively new, and many current retirees have not contributed for their entire careers. As future generations retire with lifetime super contributions, they may find themselves better positioned to purchase a home later in life. The structured loan proposal can serve as a middle ground, allowing younger Australians to access homeownership without compromising long-term financial security.

  5. Supportive Policy Reforms:

    • This proposal could be part of a larger reform package addressing housing affordability, such as:

      • Incentivizing Baby Boomers to downsize, freeing up housing for younger buyers.

      • Including high-value family homes in the age pension asset test.

      • Revisiting tax policies like negative gearing and CGT discounts on investment properties to redirect the market focus on homes as essential assets rather than investment assets.

This superannuation-backed loan proposal provides a balanced approach that grants access to homeownership while preserving superannuation balances for retirement. Structured as a loan rather than a disbursement, it protects retirement outcomes while supporting immediate housing needs, offering a sustainable, middle-ground solution that can benefit individuals, super funds, and the broader economy.

Source: https://www.afr.com/wealth/superannuation/allow-people-to-cash-out-of-super-above-9pc-grattan-20241029-p5km7e

https://www.vanguard.com.au/personal/invest-with-us/fund?portId=8121&tab=performance

Matthew McCabe