Workers to be worse off if super homebuyer scheme goes ahead, Industry Super Australia warns

The Coalition’s proposal to give first-home buyers early access could affect other workers’ savings, according to Industry Super Australia.

All workers worse off as funds face pressure to boost liquidity, ISA says.

The Morrison government’s proposal to give first home buyers early access to their superannuation could wipe tens of thousands of dollars from every worker’s retirement savings, even if they don’t access the scheme, according to Industry Super Australia.

In a last-ditch push to win over younger voters, Scott Morrison this week declared a re-elected Coalition government would allow prospective homebuyers to siphon up to $50,000 from their super savings to buy a property.

But analysis from ISA, whose members include some of the nation’s largest super funds such as AustralianSuper, Hostplus and Cbus, shows funds would face increased liquidity requirements due to the scheme, forcing them to keep more cash on hand and reducing their exposure to long-term growth-oriented assets.

ISA modelling shows these liquidity requirements will slash returns across investment portfolios by between 10 and 20 basis points each year, depending on the demographics of the fund and existing asset allocations.

A 30-year-old on the median wage with a $20,000 starting balance could be between $14,700-$29,100 worse off at retirement in today’s dollar’s, even if they don’t access the scheme.

ISA chief executive Bernie Dean warned the move to bust open super would hurt both long-term savers and those hoping to buy their first home.

“Not only will throwing super into the housing market jack up prices and make houses less affordable, all Australian workers will be worse off because of lower investment returns,” Mr Dean said.

“Super is meant to be for people’s retirement, not supercharging house prices and pushing the home ownership dream further away.”

Under the proposed policy, Australians would be able 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.

ISA also pointed to the KiwiSaver scheme in New Zealand, which has allowed workers to access nearly all of their retirement accounts funds for a first home deposit since 2007, as proof early access is detrimental to long-term returns.

“KiwiSaver balanced option returns delivered around 1 per cent per annum less than Australian balanced MySuper products over 5 and 10 years and held around 13.5 per cent less in growth assets than Australian counterparts.

“For a 30-year-old on about $60,000 wages with a $20,000 starting balance that could mean $131,600 less at retirement,” the lobby group warned.

Superannuation Minsiter Jane Hume hit back at the modelling, saying ISA was “clutching at straws” with arguments to keep more funds in super where fees are paid.

“Those in the super industry have consistently opposed any changes to improve the superannuation system for the benefit of members, instead working to protect their own vested interests,” she said.

“This includes loudly opposing the Government’s Your Future, Your Super reforms which remove underperforming funds from the market and can improve a members’ balance by almost $100,000 at retirement.”

Earlier analysis by the ISA this week showed that super funds could be hit with $8bn to $10bn in withdrawals each year if the Morrison government is returned to power and legislates to open up early access.

Allowing couples to take just $40,000 from their super would also send property prices skyrocketing in all state capitals, with the impact most severe in Sydney where the median property price could lift a staggering $134,000, the lobby group warned.

The Association of Superannuation Funds of Australia CEO Martin Fahy has 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.