FPA warns of serious flaws in Super Saver Scheme

There are real risks of unintended consequences to both superannuation and the housing market tied up in the Government’s First Home Super Saver Scheme (FHSSS), according to the Financial Planning Association (FPA).

Not the least of those risks is an erosion of the benefits of compound interest, the FPA has warned.

The FPA has used a submission to the Treasury dealing with the Government’s FHSSS Budget initiative plus its home downsizing proposals to warn of significant unintended consequences including increased pressure on the Age Pension in future years.

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“The FPA is concerned that allowing people to access their superannuation accounts for a deposit will have consequences on both the housing market and the retirement income system, ultimately increasing house prices and the strain on the Age Pension,” the submission said.

It said that while the proposed FHSSS was based on the release of voluntary contributions, these FHSSS funds were not quarantined from superannuation balances, meaning the proposal would still have consequences for the retirement savings of many Australians who use the scheme.

“The investment earnings in super usually represent a larger component of an individual’s superannuation balance at retirement than the voluntary contributions an individual makes,” the FPA submission said. “Any income earned by assets sitting in super gets reinvested to buy more assets, over years and years. A key attribute of the superannuation system is the use of compound interest to improve the growth of retirement savings. Removing money from super early dramatically cuts its growth potential.”

“The longer the funds remain in super, the greater the consumer nest egg in retirement,” it said. “The early release of funds presents long-term implications for the superannuation system as consumers lose the impact of compound earnings over several decades, leaving Government to fund the resulting shortfall in retirement savings.”

The FPA submission said using superannuation accounts to fund housing would reduce the retirement savings of future retirees, putting extra pressure on the Age Pension.

“As evidenced with the first homeowner grants, incentives for housing usually push up house prices. Such schemes commonly result in a condensed influx of people being able to afford to buy with more money up front to spend on a house, driving more demand for properties and artificially inflating house prices to match the availability of funds,” it said.

“Housing markets then adjust accordingly to the influx of funds, further disadvantaging home buyers. This ignores the cyclical nature of markets. Encouraging people to buy property at what may be the peak of the cycle in some cities will not grow wealth, rather it will only lead to an increase in household debt.”

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I fail to see how voluntary additional savings (which is all that can be withdrawn) can impact the compound earnings on the 9.5% SGC component in any way shape or form. If this scheme was allowed to work for a while, you might find a whole lot more "lost" super would be found as the fund member has a reason to engage with the fund or adviser for an additional benefit. Lets give it a try for 5 years, & see what happens.

Seriously FPA?? People would not be accessing employer contributions, they are only accessing contributions that would otherwise not have been made to their super and therefore has no impact on the future value of their superannuation. In fact the opposite is likely, they will become more engaged about the benefits of contributing to their super using pre-tax funds and may continue to do so as it will be something that they understand.

The whole scheme is a "crock" anyway.
Almost no 20-30 year olds have the capacity to save up to $30,000 p.a via salary sacrifice into super !
Most don't earn enough disposable income to save for much of anything,... otherwise they'd already be doing it.
On the basis that this "hair brained" scheme was remotely possible, how much deposit does anyone think will be needed to fund the 20.0% deposit ?
Given that the average medium priced for a property in Sydney is around $800,000, that's $160,000 to save as a deposit today, with a couple servicing a loan of $640,000. By the time they get their $160,000 deposit does anyone seriously think the property in say 5-6 years because of scarcity think it can still be purchased for $800,000 ?
Does anyone seriously think that interest rates for borrowers @ around 4.5% today will still be the same in 5 years.
Assuming a couple can borrow that kind of dough, they will collectively need to be earning in excess of $250,000 p.a.
Who's doing that now ?
All of you are living in Disneyland if you think otherwise !!!

I think the FPA have missed the point with this analysis. Accessing super is basically only to the extent of additional voluntary contributions (plus deemed earnings), which presumably would otherwise have been saved outside super anyway, so I see the impact on retirement savings as minimal.
There might be an opportunity here for parents to supplement working kid's income to allow the kids to salary sacrifice into this scheme, watch this space......
I don't see the scheme as being much help to anyone trying to buy a home near a major capital city.

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