what buyers need to know about the Morrison government program
The proportion of 35-44 year olds who own their homes has risen from 73% to 61% over the past 20 years, according to the Australian Bureau of Statistics.
And among 25-34 year olds, it fell from 52% to 37%.
However, Peter Foley, financial adviser at Thirdview Financial Planning, said he would tell buyers to “reconsider using it as an option very carefully”.
“Your long-term retirement savings will be affected,” he said.
“If you definitely go ahead [with the government scheme]then I would advise you to do everything you can to return that money to your super as soon as possible, for example by sacrificing your salary.
More generally, he thinks the scheme will only inflate any potential benefit, as house prices rise to match the increased purchasing power of buyers.
Most young Australians didn’t have much in their super to start with, said Crystal Financial Planners adviser Louise Lakomy, who wondered how much they could tap into their retirement savings if they wanted to.
To access the full $50,000, savers would need to have $125,000 in their super – an amount the average Australian wouldn’t accumulate until they hit their 40s.
Donations could block good financial habits
Ms. Lakomy believes the solution lies in buyers adjusting their expectations and saving more.
“Going back to the basics, which kids have forgotten these days, have a savings plan,” she said.
“I also think expectations need to be lower. They may live in Mosman, but it may not be affordable. But there are still plenty of parts of Australia they could tap into as a first-time home buyer.
She sees Liberal and Labor housing offers as giveaways and fears they are preventing young buyers from developing sound financial habits.
While she acknowledges that soaring rents and sluggish wage growth have hampered the ability of young Australians to save, she thinks borrowers should consider living with their parents longer and working harder to save.
Affordability needs to be addressed
According to the Grattan Institute’s economic policy program director, Brendan Coates, the problem is that the program won’t work broadly to improve housing affordability.
“In terms of moving the needle and halting the decline in home ownership among young Australians and among poor Australians, I don’t think it will change the needle much because the super is a contributory system,” said he declared.
“What you have in super depends on what you invest in it, and so low-income Australians, who are the ones struggling mostly under the housing market – they just don’t have much.”
A better approach would be to engage state and local targets to help build more affordable housing, he said.
Although he doubts the scheme is working as intended, Mr Coates also thinks the adverse effects in retirement are overstated.
“If someone withdraws 40% of their super balance at age 30, it won’t have a big impact on their retirement. I think the argument that this is going to doom people to retirement poverty is really overblown,” he said.
“That’s because if people were to dip into their super, it means their super balance in retirement would be less – but that’s offset by a higher old-age pension, especially for middle-income earners.”
Grattan’s analysis of the 2020 pension plan early release found that a 35-year-old earning $60,000 who withdrew $20,000 from his super would have $58,000 less in his retirement nest egg.
However, the total effect would be limited to about $900 per year, as a lower super balance would be offset by a higher pension payment.
“The impact of this on people’s retirement incomes is relatively small, so if it’s the difference between getting into the market or getting the house you want, it’s worth thinking about,” Ms. Coates.
“Much more advantageous”
Calls within the Liberal Party to overhaul the pension system have been mounting since 2020, with many saying housing, rather than super, should be the mainstay of the pension system.
“It remains absurd to force a 20-year-old to prioritize his retirement in 50 years, before owning a house he would have compound benefits for over 50 years,” the MP said. Liberal Tim Wilson. The Australian Financial Review in September 2020. His words were echoed by Senators Andrew Bragg and James Patterson.
Some financial advisers agree with this premise at least. “I am a proponent of prioritizing home ownership over superannuation for young people,” said Minchin Moore, partner and Financial analysis columnist Ben Smythe wrote in a LinkedIn post. “Owning your own property in retirement for a low-to-middle income person is far more beneficial than having $200,000 to $300,000 in super retirement.”
But he added that he felt he was “swimming against the tide” in supporting the policy and that it would have benefited from the inclusion of a means test, so that only the most needy Australians got qualify.
The government’s retirement income review last year also placed housing as a central pillar of a comfortable retirement.
However, he did not recommend or suggest using the superannuation to buy a home, instead suggesting the ability to access home equity was an underutilized opportunity.
“This report highlights the importance of home ownership in providing retirement security, for example by removing the need for income to pay for rental accommodation and providing an asset that can be drawn on to supplement the retirement income,” the study concludes.
“Homeowners also have the option of accessing equity in their homes to supplement their retirement income and manage longevity risk, although few currently do so. If this potential were realized, housing would play an even greater role in the retirement income system.