WITHDRAWING from superannuation to pay a deposit on a home would take away up to 12 years of retirement savings, an industry expert has said.
Australian Catholic Superannuation chief executive officer Greg Cantor, commenting on the recent debate about using super to pay for a home deposit, said that move would “significantly erode” the original intention of superannuation and impact on people’s retirement lifestyles.
“It is true that simply allowing superannuation to be used as a deposit for housing will, in isolation, result in higher prices for houses, larger levels of debt and poorer retirement outcomes,” Mr Cantor said.
Prime Minister Malcolm Turnbull has already opposed letting young people access their superannuation to buy a home, while Resources Minister Senator Matthew Canavan has backed the idea.
First established in 1988 with award superannuation and then further developed with the Superannuation Guarantee (SG) in 1992, employers are obligated to make contributions to their employees’ super funds on top of wages and salaries.
These contributions are made in order to give retirees financial benefits at retirement.
This, according to Australian Catholic Superannuation, includes having money to spend immediately, having ongoing income to meet recurrent expenditure, and housing security.
Employer contributions have been sitting at 9.5 per cent since July 2014 but, thanks to a deal with Palmer United Party, the SG contributions will increase in 2021 until it reaches up to 12 per cent by 2025.
Mr Cantor said the SG rate was “already too low” to provide secure income at retirement.
“People actually need fifteen per cent saved over a lifetime,” Mr Cantor said.
“Taking money out early leaves people further behind.”
But how far behind would young people be if the idea was to come to fruition?
“With the effects of compounding interest, it has been stated that this could take away seven to twelve years of retirement savings from a final benefit,” Mr Cantor said.
“This means that if people are retiring at sixty-seven years of age, would they be prepared to retire at fifty-five years as this will be the size of their account balance?”
As well as putting young people at risk in retirement, allowing superannuation to be used to put down a deposit would also fuel an “already overheated property market”.
“The current debate has been focused on people in their thirties using their super to fund the deposit on their first home,” Mr Cantor said.
“Currently the Queensland State Government has first-home buyers’ grants available which by adding in their superannuation, which again would vary from individual to individual, and possibly further harm those who are needing to be helped the most, could mean that we continue to fuel housing prices and force even more people out of the market.”
Mr Cantor said there were other “more useful and sustainable” ways to improve housing affordability which wouldn’t leave young people in a vulnerable state in retirement.
“Australian Catholic Superannuation is investigating these ideas with government and other potential financial partners,” he said.