Two superannuation bodies have rejected and urged caution against the proposal by Senator Chris Back to let students pay off their debt using their super.
The Australian Institute of Superannuation Trustees (AIST) rejected the proposal arguing the purpose of super was not to pay down High Education Loan Program (HELP) debts.
AIST executive manager for policy and research, David Haynes, said superannuation was not the solution to plugging Budget holes related to student debt.
“The long-term benefit of superannuation is compound interest. Taking money out of super — particularly at a young age — will reduce this and impact on financial security in retirement,” Haynes said.
“Even when the superannuation contribution rate reaches 12 per cent, most young Australians will need every cent of their superannuation to achieve adequate levels of income in retirements.”
AIST also noted that super being used for purposes other than retirement could see an increased reliance on other Government measures such as the Age Pension.
While the Association of Superannuation Funds of Australia (ASFA) did not reject the proposal, it recommended before any proposal extending the use of super was considered, there should be agreement on the purpose of the super system.
ASFA chief executive, Pauline Vamos, said any proposal allowing early access to super to address the funding to pre-retirement needs comes with a number of problems, including the loss of compound interest.
“With any proposal, a balance must always be struck between the benefit and the practicalities and the costs of implementation, including to the funds and to their members,” Vamos said.
“…If a person aged 30 on a salary of $60,000 per year took out $25,000 to repay a HELP debt, their final retirement savings at age 67 would be reduced (in today’s dollars) by $54,000. This would be enough to take the average balance of $429,000 (for a person of this demographic) down to $364,000, far below the estimated amount required to maintain a comfortable standard of living in retirement.
“If the repayment schedule for HELP debt is too harsh then this issue should be examined independently, rather than compromising the financial stability of our future retirees.”
ASFA warned that if the proposal went through it might actually have a high cost to government rather than providing greater revenue, due to foregone tax income flowing from people on higher salaries using salary sacrifice into super to repay their HELP debt.
