The reduction in barriers for those over age 65 to downsize their home introduced in the Government’s Budget is great news for wealthy people but not a good idea for the masses, Rice Warner believes.
The measure will allow those aged 65 and over to make a non-concessional contribution into their superannuation of up to $300,000 from the proceeds of selling their home from July 2018.
In an analysis, the research house said for wealthy people it made the pension transfer cap $1.9 million for each person, provided they sell their home. It noted that they did not need to buy a new home and could even buy a more expensive house.
However, for the masses, a couple owning a home with other assets including superannuation of $350,000 would be eligible for a full Age Pension of $34,800, and if they capitalised $600,000 and put it into super, or the bank, they would lose the whole pension.
“Superannuation funds will now need to be able to accept non-concessional contributions from retirees who would otherwise be ineligible,” the analysis said.
“This will require new documentation verifying the source of the funds (from a sale of a family home owned for more than 10 years). Another costly imposition on the industry!”
On the first home super saver scheme, Rice Warner said it would make young people more engaged with their super and funds could target young members for consolidation and the benefit of this facility, but there was not much time to get the structure in place by 1 July 2017.
As the records would be maintained by the Australian Taxation Office (ATO), rather than the fund, from the fund perspective the amounts received would distort areas such as reserves and asset allocation. Rice Warner noted that while the amounts would be a relatively small share of all assets, it was another imposition on a fund.
“Funds should earn more than the interest paid and the excess will stay in the fund. Conversely, if there were a downturn and low or negative earnings, the deposit withdrawn could lead to a deficit in the member’s account which would be subsidised by the superannuation guarantee (SG) account,” it said.
“As the housing deposit amount will be held for relatively short periods (perhaps no more than two to three years), superannuation funds should consider putting the contributions into a more conservative investment option. Even if this is not done, funds will need to set out in the PDS [product disclosure statement] for all members the potential issues of having a short-term time horizon.”
Rice Warner also noted that the timing of the payment of the deposit would be interesting.
“If someone buys at auction and needs a five per cent deposit, at what time do they draw the money? Presumably, the ATO will need proof of purchase before releasing the deposit,” the analysis said.
“If the youngsters end up deciding not to buy a house, they will not be able to withdraw the deposit and use it for other purposes – it will be locked up in superannuation.”