Folly of super for housing laid bare

The Federal Government needs to consider the future significant impact on the Age Pension which would flow from allowing people to access their superannuation to fund a home purchase, according to actuarial research house, Rice Warner.

In an analysis published late last week, Rice Warner has calculated that if the Federal Government allowed someone to draw $100,000 from their superannuation balance at age 35, it could lead to the Commonwealth needing to provide the same person with an extra $92,000 in welfare benefits later in life.

“We know that current levels of superannuation savings will not make people self-sufficient in retirement. If we look at people who have attained the retirement age, some 45 per cent are currently on a full Age Pension and 31 per cent are on a part pension,” it said. “That means only 24 per cent are not drawing a government benefit – and some of these are still working.”

“In 30 years, we estimate that the higher levels of superannuation benefits and a small increase in the pension eligibility age will push down the numbers on a full Age Pension to 33 per cent with a corresponding rise in those on the part pension to 45 per cent. However, the numbers who are self-sufficient will not change much at all. This shows that people will need to put more of their own money into super to become self-sufficient and they certainly cannot afford to take any out before retirement.”

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Rice Warner said it had modelled the impact on a super fund member aged 35 on average earnings taking $100,000 out of their super account to use as a housing deposit.

It said the member would lose the power of compound interest and, assuming they only received superannuation guarantee (SG) contributions and did not top up their super later in life, they would draw an extra $92,000 (present value) in Age Pension payments in their retirement years.

“So, the Federal Government allows someone to draw $100,000 and then pays them an extra welfare benefit of $92,000 later in life,” the analysis said.

It said that while some had suggested the super fund would simply lend the money to the member and it would be repaid, this would reduce the pain but the member would still lose out on years of fund earnings and investment returns.