First Home Super Saver Scheme could threaten super balances
A new analysis shows the scheme could eat into consumers' compulsory superannuation assets.
In its submission to Treasury, Industry Super Australia (ISA) has argued that the First Home Super Saver Scheme (FHSS) proposed in the May Federal Budget will likely hurt superannuation balances. It also argues that the policy has the potential to drive housing prices up even further.
The FHSS will allow first-time home buyers to contribute up to $30,000 of their pre-taxed income to their superannuation which they can then use for a house deposit. This money would be taxed at the rate of 15%, which is likely much lower than the rate savers would otherwise have to pay through regular PAYG tax. The money would also be taxed at a marginal rate when it's withdrawn, less a 30% offset.
Prior to the Budget, the scheme was widely criticised by the superannuation industry for its potential to increase demand for property without increasing supply. This would, in turn, make the housing affordability crisis even worse.
A new analysis by ISA shows that if the scheme had been in place over the last decade, more than half of those with a super balance would have seen their savings hurt due to the design and structure of the scheme. ISA chief economist Stephen Anthony says that the scheme is not all it's made out to be and would likely force super funds to dip into Australians' compulsory savings.
"The scheme would offer limited benefit to first home savers and threaten retirement savings. Super funds will be forced to dip into compulsory savings to cover shortfalls in ‘guaranteed’ returns, leaving people with much less at retirement," said Anthony.
"Funds will need greater liquid asset allocations to deal with unpredictable withdrawals. This may hamper their ability to invest in assets such as infrastructure and impact fund performance."
“People must also understand that after paying super contributions and earnings tax, the $30,000 put into the scheme could be worth as little as $25,000 on withdrawal."
ISA argues that the proposed FHSS "runs counter to the sole purpose test and the Government's own objective of super" which is to save for retirement and reduce the amount of Australians relying on the aged pension.