To allow withdrawals from your super to fund a house deposit, or not to allow it. That has been the big question on everyone’s lips since Treasurer Joe Hockey recently floated the idea.
Hockey has proposed that Australians be allowed to withdraw money from their superannuation to help them buy a house.
Since raising the issue, it’s been a hot topic with opinions flying high about whether this is a good idea and should be permitted. Most say it would negatively impact on Australians.
Senior Cabinet Minister Malcolm Turnbull has criticised the party’s proposed policy, saying in an ABC report that buying houses wasn’t within the domain of the super system. He said:
“My own view is that it would be a thoroughly bad idea. It’s not what the superannuation system is designed to achieve. Housing affordability is a big issue in Australia but as we’ve demonstrated over many studies over many years, this is a supply side problem.”
Former Treasurer Peter Costello expressed similar sentiments, pointing out the effect it would have on both the welfare system and retirees.
“This Government’s going to look at it again; fair enough, things may have changed, but I think they’ll come to the same conclusion as we did … If you want it to top up people’s retirement, if you want it to save the Government money and it has that dual purpose, then you probably won’t allow people to draw down on it for housing.”
So, why would allowing people to extract money from their super to buy a house be so detrimental? After all, you can use funds from an SMSF to invest in property.
But buying property through SMSF is an investment to help bolster your retirement funds, not diminish your savings. You cannot reside in the house you buy.
Industry Super Australia Chief Executive David Whiteley doesn’t support the idea, saying in a report in the Guardian that it will force house prices through the roof and result in significant losses for each superfund.
“People would expect to either retire with less and have a less comfortable retirement or bear a larger burden on the age pension or work longer – possibly into their 70s,’ he said.
“When you consider the ageing population and you recognise the need to reduce the burden on the age pension in the future, and you recognise the need for greater private provision of retirement, the question is how do you achieve that and get people to save money.”
Mr Whitely is also at pains to point out that if an average income-earning Australian withdraws $40,000 from their super account to use as a deposit on a house, it could result in a loss of over $140,000 in compound interest by retirement age.
A loss of $140,000 dollars from super is huge. It would result in increased reliance on pension payments for retirees to survive, creating added pressure on the Government to support ageing Aussies.
At Wealth Smart, we’ve always been big believers in setting yourself up early in life. This involves building and protecting your wealth through super, smart investments and insurance from a young age.
We also know buying property is a big part of your wealth-building journey, but it’s important to consider what real benefits there are in accessing your super early to buy property and to weigh them up against your future comfort and savings. Read up more ways to live wealth smart on our New & Views blog.