The Federal Government has been confronted by a broad cross-section of the financial services industry which believes its First Home Super Saver Scheme (FHSSS) is not compliant with the sole purpose test and therefore breaches the Superannuation Industry (Supervision) Act.
Submissions to the Treasury dealing with the FHSSS initiative announced in the Federal Budget revealed that not only the industry funds believe the Budget initiative is a breach, but also groups such as the Financial Planning Association (FPA).
Industry Super Australia (ISA) used its submission to state the scheme was “inadequate in addressing the issue of affordability amongst first-home buyers” and was “likely to be counterproductive in that it could make housing less affordable”.
“[The scheme] certainly sets a dangerous precedent of drawing upon superannuation savings for purposes other than retirement income,” the ISA submission said. “The scheme is inconsistent with the Sole Purpose Test (Section 62 of the SIS Act 1993) and with the Government’s own Superannuation (Objective) Bill 2016.”
“The scheme would deliver lower savings compared with a post-tax contribution towards a deposit account, partly due to the super contributions tax,” the submission said. “The salary sacrifice contribution would be further reduced by the tax paid on withdrawal (despite the 30 per cent offset). “
It also noted that the scheme sought to 'guarantee' returns through the use of the shortfall interest charge to calculate earnings rather than actual returns and warned that this mechanism would require superannuation trustees to pay withdrawals from using superannuation guarantee assets if returns are low.
“Based on historical analysis more than half of savers would have their superannuation guarantee [SG] assets eroded due to scheme design,” it said.
Dealing with the home-owner down-sizing proposals in the Budget, the ISA submission said it would only benefit wealth self-funded retirees.
“This does nothing to reduce other downsizing costs like stamp duty. Retirees relying on the age pension may see their entitlements decline as any gains from downsizing will not be exempt from pension asset test,” it said.