Debate rages over whether first homebuyers should be allowed to access super
The superannuation funds withdrawn during COVID-19 have reached $35 billion, with debate now raging over whether first homebuyers should be able to access their nest egg to buy a home.
The superannuation funds withdrawn during the COVID-19 early super release scheme has reached $35 billion with just over a month before the scheme expires on December 31.
The average amount paid out under the scheme is just under $8000 with around 4.7 million applications.
Debate has intensified over whether first time home buyers should have access in future years to their super nest egg after the Treasury issued a 600 page retirement income review.
The legislated plans to increase compulsory super from 9.5 per cent to 12 per cent by 2025 appears in doubt partly as a result of the COVID-19 pandemic, and also given a mooted shift in fiscal objectives.
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The increase to 10 per cent is due next July, with five further 0.5pc increases scheduled annually until 2025. Treasurer Josh Frydenberg has also been told by Treasury and the Reserve Bank governor Philip Lowe that the next increase in superannuation would weaken already stagnant wages growth.
The debate on allowing first home buyers access to super has triggered concerns on people retiring with less. Former Reserve Bank governor Bernie Fraser weighed in this week saying low and modest income workers should be allowed to draw on some of their superannuation to buy a first home.
“The long-term return of owning a house rather than having to be renting one would outweigh the return of even a good performing super fund,” Bernie Fraser, who has fronted advertisements for Industry Super Australia, suggested to Nine Entertainment. Fraser, who also said there should be limits on the amount the withdrawals, was not convinced the take-up would lead to a property price surge anything like the pressures arising from capital gains tax benefits and negative gearing.
But industry super funds have warned increased intact super meant the “difference between a dignified retirement and one just scraping by.”
Former Prime Ministers Paul Keating and Kevin Rudd have criticised the early super proposal. Rudd calculated withdrawing $30,000 at age 35 could leave a worker $400,000 worse off in retirement. Rudd reckons withdrawals would push up house prices, drain national savings and force more Australians onto the pension. Keating told the ABC’s 7.30 program the July 2021 rise was equal to about $8 a week for a person on an average wage or “two coffees.” He said the super money should not be taken out for housing deposits, nor education or health but left there “to compound for retirement income.”
The father of superannuation in Australia, Keating, foreshadowed that the future for many retirees could otherwise be having “to eat your own house by reverse mortgaging your house.”
The Treasury report noted the retirees home equity release was relatively small compared to the 1.9 million homeowning households aged over 65 in 2017-18. In 2014 reverse mortgages totalled around 40,000 and Treasury said anecdotal evidence suggested the market may now be less than 30,000.
A Government move to encourage retirees to access the value of their home to fund their retirement is the downsizer contribution scheme. It allows people over 65 to contribute up to $300,000 to superannuation if they sell their home.
Originally published as Debate rages over whether first homebuyers should be allowed to access super