The Coalition’s proposal to allow first home buyers to access their superannuation could significantly impact super funds’ investment strategies and their ability to secure positive retirement outcomes, particularly disadvantaging smaller funds, according to investment professionals.
The “Super Home Buyer Scheme”, a cornerstone of the Coalition’s plan to boost housing and home ownership, is expected to allow individuals the ability to invest up to 40 per cent of their super, up to a maximum of $50,000, towards buying their first home.
Speaking to Super Review, Sarah Penn, managing director at Mayflower Consulting, stated that allowing individuals access to additional capital through the Super Home Buyer Scheme fails to address Australia’s fundamental housing supply issue, “just making the problem worse” and hindering funds’ ability to take a long-term view on their allocations.
“It means you have to have a lower asset allocation to very long-term investments like infrastructure because you have to have more liquid cash available if people need it,” she said.
“It stops the investment team being able to take a very long-term view on a very large amount of money.”
While illiquidity is unlikely to impact mega funds like AustralianSuper, which sees net flows of nearly $20 billion in a single year, Penn cautioned that smaller funds will “really cop it”, especially if they have a younger member base looking to purchase a home.
“It really does depend on what the member base looks like, and this is something where the very large funds are at an advantage because their membership, I suspect, looks very much like the Australian population. It’s a big range of ages, socio-economic [status’], income, whereas smaller funds tend to be more single cohort,” she said.
“A change of policy like this could, on a smaller fund, have a pretty dire impact.”
Joshua Lowen, insights manager at SuperRatings, concurred that fund flows will play a crucial role in determining how effectively funds can navigate this policy.
“The introduction of a housing withdrawal condition of release is likely to have different impacts on funds’ investment strategies, depending on the size of fund inflows, which are linked to but not entirely dependent on fund size,” he said.
While he noted that larger funds are less likely to need to change their strategy, Lowen cautioned that if funds must reduce exposure to illiquid assets, returns will “more closely follow market movements”, with increased volatility and potentially lower long-term returns.
Reflecting on the early release of superannuation during the pandemic, he noted that its limited duration allowed funds to avoid significant shifts in their investment strategies.
However, he cautioned that if the conditions for the new release are made permanent, some funds may need to reduce their exposure to illiquid assets.
“Where flows are smaller, funds would likely need to hold more cash to support possible withdrawals, limiting their ability to invest in long-term illiquid assets,” Lowen said.
While acknowledging the challenges in predicting how limiting funds’ ability to hold illiquid assets will affect performance, he emphasised that history shows these assets provide strong diversification and contribute to better long-term growth in investment portfolios.
Earlier this year, a report by the Super Members Council (SMC) warned against the Coalition’s housing policy, highlighting how countries with more relaxed preservation rules have lower investment returns.
The SMC’s analysis of New Zealand’s KiwiSaver scheme, which permits early withdrawals for home deposits, revealed that KiwiSaver balanced options have underperformed compared to Australian balanced MySuper products, delivering returns approximately 1.14 per cent lower per year over the past decade.
When considering all investment options, KiwiSaver returns still lagged behind, averaging 0.79 per cent per year less than Australian MySuper options over the same period.
Speaking to Super Review, SMC chief executive Misha Schubert highlighted the Coalition’s policy could impact all members’ retirement outcomes, regardless of whether they dip into their super.
“International experience shows countries with more relaxed preservation rules have lower investment returns – which means less for everyone at retirement, regardless of if you take super out,” she said.
“This is seen starkly in New Zealand, where they allow retirement savings to be withdrawn for a house deposit. We estimate the average 30-year-old Kiwi will have $130,000 less than the average Aussie by retirement due to those funds needing to carry more cash on call.”
She warned that if this policy were implemented in Australia, it would likely weaken super returns for all members “almost straight away”.
