Superannuation sector warns of $8-10bn homebuyer cost

The superannuation sector has warned the Liberal Party’s plan to allow first home buyers to crack open their savings may lead to as much as $10bn in redemptions.

The superannuation sector says the Liberal Party’s plan to allow first home buyers to access their super to fund their first home will have a $8-10bn impact on funds. Picture: David Crosling/NCA NewsWire

Super funds are bracing for $8bn to $10bn in redemptions by prospective home buyers each year if the Morrison government is returned to power and legislates to open up early access to retirement savings.

The Liberal Party’s plan, announced on Sunday, would allow Australians to tap 40 per cent of superannuation savings to buy a home, up to a maximum cap of $50,000.

Homeowners would be required to return the cash to the super fund along with a share of the capital gains if they sold the property.

The proposal also provides financial incentives to older Australians to sell their homes, offering an extension to the $300,000 tax break from the sale of the family home if the money is put into superannuation.

Much of the superannuation industry is opposed to the early access proposal, warning it will hit retirement savings and reduce the system’s ability to commit funds for the long term.

But industry analysts are confident many will be able to meet redemption demands should the scheme be implemented, after the superannuation sector’s experience in 2020.

Analysts noted funds most exposed to young members would bear the greatest strain, suggesting the proposal to allow older Australians to deposit proceeds from the sale of their houses was unlikely to come close to matching the impost of the home buying redemptions.

Industry Super Australia warned the Liberal Party’s superannuation proposal would see the sector slugged by $8bn to $10bn in redemptions and costs.

These payouts would come on top of the First Home Super Saver Scheme, which allows Australians to tap voluntary contributions of up to $15,000 per year over two years, to a maximum of $30,000, to buy a house.

This scheme will be boosted to a $50,000 cap as of July 1 this year.

Users of this scheme can only request the funds after signing a property contract and receive the funds within 15-25 business days.

The Liberal Party’s plan to allow first home buyers to crack open their savings to get onto the property ladder will hit superannuation funds by as much as $10bn, according to industry players. Picture: David Crosling/NCA NewsWire

The Australian Prudential Regulation Authority’s latest quarterly data found super funds received $139.1bn in contributions in 2021.

Contributions are also set to grow in the coming years, with the superannuation guarantee set to rise from 10 per cent to 12 per cent.

Tax office data shows the median 30 to 34-year-old Australian man has $37,764 in retirement savings. The median woman has $32,904.

Super Consumers Australia director Xavier O’Halloran said the withdrawal scheme would do little to help young Australians access homes, given how small their retirement savings were.

“If you look at the lowest quintile of income earners, they’ve got very low balances and in some cases no balance. That’s typically the group that’s renting into retirement and having pretty poor outcomes as a result,” he said.

Industry Super Australia chief executive Bernie Dean said the proposal would cut future returns.

“We need sensible solutions to address house prices – like boosting the supply of affordable housing, which will bring prices down and get young people into a home without lumbering workers with higher taxes in the future,” he said.

But analysts noted the redemption demands that could flow from the scheme would be offset by the billions of dollars of contributions flowing into the sector each year.

The Association of Superannuation Funds of Australia CEO Martin Fahy said the sector could be facing a “liquidity event” from the proposal, but any impost was far smaller than the hit from the Global Financial Crisis or the early days of Covid-19.

Mr Fahy said the pandemic and emergency access to superannuation produced a $75bn liquidity event.

This came as Australians converted their super balances to cash in a bid to avoid asset price falls, while others took advantage of the pandemic relief scheme and accessed their retirement savings.

The Morrison government opened up access to superannuation savings in two waves, allowing Australians to withdraw up to $10,000 each time.

Almost $36.4bn was pulled out of retirement savings by 3.5 million Australians.

ASFA says almost one million accounts were left with less than $1000 and 160,000 were entirely cleaned out and closed during the Covid-19 withdrawals.

However, total withdrawals were below the $42bn estimates.

The Australian Institute of Superannuation Trustees projected that if withdrawals had peaked at $42bn, Australian retirement savings would be reduced by $84bn.

The size and pace of Covid redemptions caught some funds off guard, with hospitality and tourism industry heavyweight Hostplus offloading assets to build up a $6bn cash reserve to cover payouts. Hostplus, which is heavily exposed to younger workers, paid out $3bn to 425,219 members.

The Grattan Institute’s economic policy program director Brendan Coates said it was easy to over-estimate the liquidity hit for super funds from the early access proposal.

“The funds that are going to see withdrawals – REST, Hostplus, Cbus – they’re also the funds with the largest assets,” he said.

“Funds would have much more notice that this liquidity hit is coming and they would have to pay for them.”

Mr Coates also challenged Industry Super Australia’s touted cost for the scheme, saying it was far too large.

“There’s going to be more in the way of net inflows than outflows,” he said.

Chant West general manager Ian Fryer said there were questions about the liquidity impact of the superannuation withdrawals. “It’s hard to tell but it should have a much smaller impact than the Covid-19 early release,” he said.

Super funds have also questioned how the proposed requirement to pay back any retirement funds withdrawn from savings would be policed.

The ATO currently polices the distribution of funds under the First Home Super Saver Scheme, but the sale of homes is co-ordinated and taxed on a state level.

Mr Coates said it was unlikely this element of the policy would survive.

“It’s unjustified to require people to return the money,” he said.

Former RBA governor and head of Industry Super Australia Bernie Fraser said the superannuation sector should look to start a conversation with governments about how it could play a role in making housing more affordable and easier to access – something they had failed to do for decades.

“I think that there is a case that can be made for trying to get some of these people in the super industry to sit down with the states … and come to a deal to provide housing for people,” he said.

“I’m surprised and disappointed that all the industry super funds haven’t come up with an idea to invest in social infrastructure and modest housing and social housing.”