Securing Australia's Retirement System Ensures Super Future

New research reveals using super for house deposits could over time increase rents for tenants.

A Coalition policy to use super for house deposits is projected to cause a 9 per cent price spike for a median property, with that rise in house prices anticipated to flow through to private rents.

Super Members Council analysis shows if the price rises are fully passed through, median rents could increase by almost $3,000 a year – or about $57 more a week.

Multiple data sources and studies show long-term rents move in tandem with property prices. Using super for deposits would lead to a spike in property prices, which will place upward pressure on rents.

New Super Members Council research also finds a typical couple who withdraws super early to buy a home would have $165,000 less in disposable income after housing costs over their lifetimes - due to the twin effects of higher housing costs and having less super to live on in retirement (see table 1).

Super Members Council CEO Misha Schubert will outline the new research findings today in a major speech to Australia's business leaders at the Committee for Economic Development of Australia.

Ms Schubert said allowing first home buyers to access $50,000 from super for a deposit would not create any more homeowners and leave people worse off financially – as she renewed a call for the policy to be dropped and for strong bipartisanship on the preservation of super for retirement.

"A couple withdrawing their super early for a house deposit is projected to be $165,000 worse off over their lives."

"That's because rents, mortgage repayments, stamp duties and rates would all rise – and people would lose a mountain of money from their super at retirement."

"It would make life harder financially for young Australians – especially those renting - and make cost-of-living pressures worse."

In the speech, Ms Schubert will outline how super is delivering dignity in retirement for millions of everyday Australians, lifting incomes for retirees, reducing fiscal pressure on the pension, and powering Australian businesses.

But the success of super is built on the policy foundations of preservation, universality and compulsion. Eroding those system foundations would be bad for all Australians – and risk reversing the gains super has made for our savings, living standards and the Budget, she will add.

"Australia has built a transformative policy miracle in super. It is the envy of the world," she will say.

"Both major parties of Government have contributed to super's success – and both of them have a duty to safeguard it."

"Strong and enduring bipartisanship on the fundamentals of super is essential to ensure millions of Australian retirees have enough income to live on."

"We urge Australia's business leaders to speak up on the importance of safeguarding Australians' savings for retirement – to avert risks to the incomes of retirees, of fiscal damage, higher taxes, and a weaker capital base for Australia's economy."

Ms Schubert will also unveil new data that profit-to-member super funds are poised to inject almost $200 billion into Australian businesses and infrastructure in the next five years – and that today's typical 30-year-old could expect to retire with $500,000 in super.

As the nation's savings pool grows to $3.9 trillion, the temptation has grown for policymakers to seek to use super to fix other unrelated policy problems. Using super for house deposits is the latest in a long line of ideas to divert super from its key purpose: to deliver income for Australians in retirement.

But as a research briefing note released alongside the speech finds, the policy would result in:

• a couple who withdraws a combined $55,000 at age 30 would have $165,000 less in lifetime disposable income after housing costs - driven by higher housing costs, which includes paying a higher rent before buying - and lower retirement income. That's even if they purchase a home two years earlier than without using the scheme.
• super funds being forced to hold more liquid assets, lowering investment returns for everyone – including today's retirees. Based on international experience, that could mean retirees have thousands less in savings at retirement.
• reducing the pool of investment capital funds could invest in the Australian economy – limiting the ability of profit-to-member super funds to inject a forecasted $180 billion more into the Australian economy in the next five years.

Super investment returns for everyone would also be lower - as super funds would need to hold more liquid assets and have less to invest in the Australian economy.

In New Zealand, whose retirement savings system allows early super withdrawals for house deposits, their investment returns are 1.14% lower than for typical Australian super accounts (MySuper products). That difference in investment returns could mean as much as $130,000 less at retirement for a 30-year-old.

"We're now seeing super's potential to transform the economic fortunes of our nation. And all of us have a responsibility to nurture Australians' super, grow it and strengthen it for future generations," Ms Schubert will say.

Table 1: Impact of using the super for a house for a typical couple

Note: The couple are assumed to withdraw a combined $55,000 from their superannuation accounts at age 30, before that time they rent. A larger withdrawal would lead to lower superannuation assets at retirement and further exacerbate reductions in lifetime disposable income. Lifetime disposable income loss consists of the net increase of the housing cost and loss of retirement income. Housing cost increases are partially offset by the couple using their super to purchase, the couple's lower super balance at retirement is partially offset by an increase in the Age Pension.

Source: SMC modelling