We don’t always agree with Joe Hockey, but we think he’s right to trigger a debate about allowing young Australians to access their super savings to fund home purchases.
Indeed, this is the debate we have to have. We need to stop being so precious about superannuation, and to recognise the challenges facing young Australians who need to buy homes at sky-high prices and also fund increasingly expensive education.
The ramifications of this debate are important for the long-term sustainability of our economy and overall savings levels.
A sensible idea ridiculed
Treasurer Joe Hockey recently flagged that Australia needs to consider allowing first home buyers to dip into their superannuation savings for a deposit.
The suggestion has been slammed and ridiculed by the likes of former Labor Prime Minister, Paul Keating, and former Coalition Treasurer, Peter Costello.
Yet Hockey’s suggestion is sensible and worth considering. Ask those parents and grandparents who are bailing out their children or grandchildren with their long term savings; yet their beneficiaries are sitting on super savings which they cannot access.
Hockey’s idea recognises what is actually happening in Australia. With surging house prices – particularly in Sydney and Melbourne — a growing number of parents are accessing their super to help their kids purchase homes, and to also pay for education.
Importantly Joe Hockey has become one of the first senior politicians in this country to acknowledge that there is a residential housing affordability problem. In finding a solution it is essential that political leaders first acknowledge the issue. That was clearly lacking in the responses of our former politicians.
Your financial lifecycle
Hockey’s suggestion is also sensible because there are parts of your lifecycle where you need to access long-term savings. In the typical cycle, you buy a house, educate your kids, pay off the mortgage, and then move into savings mode to fund retirement. Now with extended life expectancies there is also a requirement to plan for the funding of aged care.
The key point is that superannuation is simply part of long-term savings, along with a house and non-super investments.
If we remove the emotive title of ‘super’ and instead deem it a form of long-term savings, a lot of the philosophical opposition to accessing these savings falls away.
The simple fact is that throughout your life, sometimes you need to tap into long-term savings. Why shouldn’t you be able to dip into super?
We think a sensible option would be to allow young people to access their super savings once before they are 40 to help fund the purchase of a home. There could even be a caveat: if you access that super, then you’ll have to wait longer, say until 70, to access it again.
Boost savings and the economy
Accessing super will not only help people manage finances better throughout their life, but will also benefit savings and the economy.
We think housing is a good long-term investment and savings vehicle for Australian families; for many one of their best investment decisions has been paying off their mortgage. It is also one of the simplest to manage, with no tax returns required and no capital gains tax.
Allowing people to pay off mortgages will also boost the economy. Servicing a mortgage comes after tax: you pay tax and then pay your interest. Paying off a house substantially increases cash flow. That freed-up cash flow can then be saved or invested or consumed, which will benefit the economy.
Not such a radical idea
Some commentators are worried that accessing super for homes will push up prices. We don’t agree. What has pushed up prices is access to debt. Allowing young people to access $20,000 to $30,000 of super isn’t going to push up prices.
Critics also forget that this isn’t such a radical idea and has actually been available in the past.
Before compulsory super, superannuation had two elements, preserved (which couldn’t be accessed) and non-preserved (which could be accessed).
Many people were given the option of accessing the non-preserved elements. They then used those funds to pay off their mortgage, which has proven to be a sound financial decision.
Superannuation is an emotive issue and many see super as sacred. But we have been happy to help people buy homes through First Home Buyer’s Grants and stamp duty concessions. Allowing young Australians to sensibly access their super will remove the need for those subsidies, boost savings and help the economy.
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