This blog nearly four years ago drew the attention of readers to the benefits of Canada’s superannuation policies over our own in the following post:
Posted on August 27, 2013
In the current lead-up to the 2017 Federal Budget, the Coalition Government has floated the possibility of using superannuation money to help potential first home buyers to save for a deposit.
Support has been muted, and largely drowned-out by protests led by the opposition and the superannuation industry. Little wonder that the government is already backing down on the issue. Opponents do have a point that such a measure is likely to be swallowed up by higher housing prices, and will have little impact on improving housing affordability.
Compulsory superannuation guarantee payments tap into employer funds to peg the growing cost to the government of providing for the aged pension, but the more important question must surely be what course of action will most benefit the public? What help is it for them to have to save super they cannot use until they turn 70, and then pay off their house mortgage?
Another pertinent question to ask! Which is the better investment? Without doubt it is home ownership. Inflation steadily erodes both the interest return and the capital value of superannuation balances over a working life, whereas it adds to the value of home ownership. There is an immediate benefit in living in your own home in not having to pay rent, a saving which may more than offset the cost of servicing a home loan.
The other massive advantage of home ownership is that it is tax-effective, exempt from capital gains tax when sold. Furthermore, come retirement, it does not diminish the pension entitlement.
How often have retirement savings been lost by financial mismanagement and market collapses such as the GFC? When this happens superannuants also lose the upfront 15% contributions tax they have paid.
Many retirees have received windfall gains in recent years from the growing property bubble in Sydney, Melbourne and Canberra especially, but such changes might not last in the wake of further legislative change. Already however there are measures designed to assist those who are asset rich, but cash poor. One such measure, allows the use of reverse mortgages that do not jeopardize home ownership, for retirees to use to supplement their income.
The need to save for retirement in the past was mostly left until after the age of 40. Prior to this there were other priorities, such as life cover for the bread-winner, self education expenses and home acquisition. There is no valid reason why this priority should now be any different.
Some banks (e.g. Westpac) allow savings accounts to be set-up in which the balance is offset against that of the mortgage. Advanced and extra payments substantially enhance the ability for borrowers to pay off their house loans.
Why not allow superannuation guarantee payments to be held in such an offset savings account until the age of 40? The capital would continue to grow in this time, and the loss of interest could be expected to have little impact on the end superannuation benefit, given the small superannuation balances in the under 40 age group.