Using super to buy home worth a new look

Super funds have to start thinking not only about helping their members move towards retirement but engaging younger people in supporting superannuation.

It’s taken a long time but the smarter industry and retail superannuation funds in Australia are starting to wake up that they must become more than a “money box” .

Most of the funds were staggered at how willing members, particularly younger members, were to withdraw money when the government gave them the chance during the worst of the pandemic.

A large number of Australians saw their super as simply a “money box” and grabbed the chance to take money out.

I know this is superannuation heresy but, as I will discuss below, it’s time to look again at allowing superannuation to help young people purchase their best retirement asset --- a dwelling to live in.

Leaving that aside, the motivation to rush to take money out of superannuation was partly the fault of the big superannuation funds themselves. They have not related to ordinary Australians and explained how superannuation can be used in retirement.

For the most part the people who understand how to use superannuation in retirement are members of self-managed funds and, significantly, their withdrawals during the pandemic were at much lower levels.

Self-managed funds comprise around 30 per cent of the total funds in superannuation but many members are now ageing and are becoming concerned with the management of their funds.

Thankfully superannuation minister Jane Hume has come to the rescue and restored an old Coalition superannuation policy that lifted the number of members allowed in a fund from four to six. That simple move will make it easier for mum and dad superannuation members to bring their family into the fund so that the total family can be involved in its running. That simple move creates a new era for many members of self-managed funds.

One of the reasons why so many of the big funds lost touch with their members was that during the last two decades an enormous amount of energy was devoted to fighting self-managed funds.

The current move to increase membership to six should have sailed through the House of Representatives and Senate. But, instead, the Senate referred it to a committee. One can only hope that the industry and retail funds are not up to their old games and pressuring politicians to block important reforms for this vital sector of the superannuation movement. But I must admit bias - I am a member of a self-managed fund..

In the Jane Hume changes to industry and retail funds most attention has been on the performance disclosures. It’s a long overdue measure but there is still work to be done. It is important that the members know their return after fees and charges. But it’s equally important that flexible investment strategies become linked to the needs of different age groups.

And so younger people are more likely to be attracted to high-growth alternatives while older people are more likely to be interested in funds that don’t fluctuate wildly.

Comparing the performance of these different types of investment strategies is a chalk and cheese exercise. When it comes to people approaching their 60s few superannuation funds have helped members look at their options, particularly if they are also going on the government pension. More annuity-style options need to be developed.

A major reason why people left big funds and started their own was that the disclosure by large retail and industry funds has been nothing short of deplorable. Remember, trustees are managing their members’ money, not their own. And those members are entitled to know the remuneration of key executives; marketing expenditures; political donations; sponsorships; payments to unions and industry bodies and related party transactions. Self-managed funds have no such expenditures.

The big funds are now being forced to do what they should’ve done 20 years ago, instead of playing silly games fighting self-managed funds.

I look forward to the day when there is even greater disclosure as we move further towards the American total disclosure model. It is time we need to start thinking about superannuation in a way that benefits members at different age levels. For some older people annuity-style products would be an advantage.

For young people, let’s revisit the idea that, on a restricted basis, some of their superannuation could be used to help them own a home. Owning a dwelling to live in is probably the best single long-term step anyone can take to fund retirement. The idea of using superannuation to help both current living and retirement this way is abhorrent to the superannuation movement. But they have to start thinking not only about helping their members move towards retirement but engaging younger people in supporting superannuation.

There is no better way of doing that than using superannuation to help get them started on buying a residential dwelling.

We are not ready for that yet but the lessons of the pandemic are only just starting to percolate through the superannuation movement and its members.