Chapter 3Superannuation withdrawal schemes
3.1A superannuation withdrawal for housing scheme would allow individuals to withdraw capital from their superannuation account to purchase their first home. The intent of such a scheme would be to provide first homebuyers with access to enough capital to finance a deposit and subsequently buy their first home, reducing the time required to save for a deposit.
Superannuation withdrawal
3.2In Australia, account holders are ordinarily restricted from withdrawing any part of their superannuation until they either:
reach the age of 65, even in circumstances where they have not yet retired;
reach preservation age and retire; or
begin a transition to a retirement income stream while continuing work.
3.3However, the current superannuation regime does permit account holders to make early withdrawals in extremely limited circumstances. The following categories of early access exist:
access on compassionate grounds;
access due to a terminal medical condition;
access due to severe financial hardship;
access due to temporary incapacity;
access due to permanent incapacity; or
access where the account holder’s superannuation balance is less than $200.
3.4The Australian Government does not provide a mechanism for superannuation account holders to make withdrawals from their mandatory contributions for the purposes of buying a home.
Current and proposed schemes for superannuation withdrawal for home ownership
First Home Super Saver Scheme
3.5In 2017 the Turnbull Government established the First Home Super Saver Scheme (FHSSS), which allows prospective home-buyers to make voluntary contributions (both before and after tax concessional) into their superannuation account to save for their first home. If the account holder satisfies the relevant eligibility requirements, voluntary contributions made under the scheme will be released to assist the account holder with the purchase of their first home. This scheme is discussed at greater length in Chapter 5 of this report.
Super Home Buyer scheme
3.6At the 2022 federal election, the Morrison Government announced that, if-re-elected, the Coalition would establish a Super Home Buyer scheme which would allow first home buyers to invest up to 40 per cent of their superannuation, up to a maximum withdrawal limit of $50 000, to assist with the purchase of their first home.
3.7Under this proposed Super Home Buyer scheme, an eligible participant would be able to make withdrawals from both their mandatory and voluntary contributions. The scheme would have applied to both newly built and existing homes, with the withdrawn amount to be returned to the account holder’s superannuation fund when the house was sold, including a share of any capital gain.
International experience
3.8Canada, New Zealand and Singapore have implemented superannuation withdrawal schemes directed at improving housing affordability and increasing home ownership. The schemes allow prospective homebuyers to withdraw funds from their superannuation account or equivalent funds to purchase property. Each of these schemes is outlined in further detail in Box 3.1.
Box 3.1 International Experience of superannuation withdrawal for housing schemes Canada – the Home Buyers’ Plan In 1992, the Canadian Government introduced the Home Buyers’ Plan, which allows prospective homebuyers to use funds accumulated in their Registered Retirement Savings Plan (RRSP), the equivalent to an Australian superannuation account, to purchase their first home. Under the scheme, an RRSP holder can borrow, tax-free, up to $35 000 from their account towards purchasing their first home. This amount was originally set at $15 000 in 1992 and has been incrementally increased over time. The Deputy Prime Minister recently announced that the amount would be raised to $60 000 from 16 April 2024. The withdrawal is treated as a loan which must be repaid by the RRSP holder within 15 years. The RRSP holder must begin their repayments within a five-year period of taking out the loan.In order to make withdrawals under the plan, prospective borrowers must be considered a first-home buyer, have a written agreement to buy or build a qualifying home, be a resident of Canada and intend to occupy the property as their principal place of residence within one year of acquisition. A homebuyer can use RRSP savings for purchasing a home more than once, provided that the homebuyer has fully repaid any previous loans taken out under the plan and if they have not owned a residence in the previous five years. Singapore – Central Provident Fund housing scheme In Singapore, members of the Central Provident Fund (CPF), a state-run compulsory savings scheme, are permitted to use savings in their CPF Ordinary Account to buy housing and development board flats and buy or build private residential properties. In most cases, prospective homebuyers can withdraw funds from their CPF account up to the purchase price of the property. CPF funds can be used for both the purchase price, and the related costs incurred in connection with the purchase of the property, such as stamp duty and legal fees. In New Zealand, a prospective first homebuyer who has been a member of KiwiSaver, a voluntary, government-run retirement savings scheme, for a period of at least three years can make a withdrawal from their savings to purchase their first home. However, the withdrawn savings must be used to purchase a home that the account holder intends to live in, and cannot be used to finance the purchase of an investment property. Not all complying funds under KiwiSaver permit withdrawals for first home buyers, and individuals with complying funds must have at least $1000 in their KiwiSaver account. |
Views on superannuation withdrawal for housing
3.9The committee received several submissions in support of the concept of superannuation withdrawal for housing schemes, noting homeownership was central to the security and sustainability of retirement.
Increased access to the housing market for first homebuyers
3.10Proponents of a superannuation withdrawal for housing scheme in Australia argued that it would improve housing affordability for young Australians by providing them with the means to realise a deposit and own a home sooner, setting them up for a stronger and more enjoyable retirement.
3.11Blueprint Institute (Blueprint) submitted that a superannuation for housing scheme would broaden access to the housing market for 25–44-year-olds at a wide range of different income levels. They claimed that under a superannuation for housing scheme, a further several hundred thousand more individuals would be able to purchase their first home, a marked improvement on the current state of the housing market.
3.12Menzies Research Centre (MRC) submitted that the best way to get younger Australians into the housing market and increase the rates of home ownership was to make it easier for them to save for a deposit. The MRC noted the significant proportion of income first home buyers must direct towards their superannuation accounts and questioned the utility of holding this capital in an inaccessible fund in the face of declining rates of home ownership. Accordingly, the MRC asserted that allowing younger Australians to access their mandatory superannuation contributions was an effective and efficient way of overcoming barriers to saving for a deposit.
3.13Further, Mr James Mathias, Deputy Executive Director of the MRC, described the Coalition’s Super Home Buyer Scheme as a ‘gamechanger’ which would arrest the decline in the rates of homeownership among young people and set up future generations for a durable and sustainable retirement built on home ownership. Ms Freya Leach of the MRC, claimed that younger Australians were particularly interested in this policy and frustrated by their inability to use mandatory superannuation contributions to purchase their first home:
… when young people realise how much of their income is being put into superannuation, which they cannot touch, even though they have this pressing need to get a house – which helps them in their retirement, as we’ve heard from all the witnesses today – they are infuriated by that.
3.14Dr Cameron Murray from Fresh Economic Thinking supported a superannuation withdrawal scheme for housing and questioned why account holders could use their superannuation to invest in houses occupied by other account holders but could not use it to invest in owning their own home.
3.15In his article titled ‘Unpicking concerns about using superannuation for housing and retiring without a mortgage’, Dr Murray stressed that superannuation is already being used for housing by retirees or older Australians who have reached preservation age. Dr Murray questioned why the government allows older Australians, who may already own one or multiple homes, to use their superannuation for housing but does not extend this de facto superannuation withdrawal for housing scheme to younger Australians struggling with high house prices and an inaccessible housing market.
Impact on house prices and relationship with supply
3.16The potential for unintended consequences on housing supply and potential inflationary effect of any demand-side intervention in the housing market, as discussed in Chapter 2, was also noted by those specifically arguing in favour of superannuation withdrawal schemes.
3.17Submitters stressed the importance of increasing housing supply in order to support increased rates of homeownership. For example, Blueprint institute and the Centre for Independent Studies (CIS) observed that without an increase in the number of dwellings, the extra demand created by a superannuation withdrawal for housing scheme could increase house prices.
3.18Submitters raised concerns about the impact of a sudden and large take-up of the scheme on house prices and emphasised the importance of combining this scheme with other measures to improve housing affordability.
3.19Blueprint institute observed that ‘demand-side interventions that continue to outpace stagnant supply will only exacerbate affordability problems’ and recommended that implementation of a withdrawal scheme be paired with an increase in supply.
Designing the scope of the scheme to ensure optimal outcomes
3.20Submitters expressed different views on the design of a potential superannuation for housing scheme, including how it should be targeted to best achieve its objective and whether it should include a repayment mechanism.
Access to mandatory contributions
3.21Blueprint expressed strong support for allowing first homebuyers to access both their mandatory and voluntary superannuation contributions to purchase their first home. They acknowledged the role of the FHSSS in improving housing affordability, particularly with favourable tax treatment of voluntary contributions, but noted that this scheme only provided account holders with early access to voluntary contributions.
3.22Blueprint highlighted that voluntary contributions form a relatively limited proportion of most Australians’ superannuation accounts and that mandatory contributions constitute the largest portion of an account holder’s available funds.
3.23Blueprint noted that opening up access to mandatory contributions would particularly benefit low-income earners, who are less likely to make voluntary contributions to their superannuation due to financial pressures and relatively low levels of disposable income.
3.24Accordingly, Blueprint concluded that extending the FHSSS to mandatory contributions would improve housing affordability by allowing first home buyers to access a richer and more reliable source of capital.
3.25This view was shared by the MRC in their evidence to the committee, which recommended that mandatory contributions be made accessible to facilitate increased homeownership among younger Australians.
Targeting the appropriate cohort
3.26Supporters of a superannuation withdrawal for housing scheme expressed differing views about which cohort of individuals should be targeted by such a scheme.
3.27Ms Downey of Blueprint submitted that a superannuation withdrawal for housing scheme would deliver the greatest benefit to younger couples aged 25-34 and suggested that the scheme be targeted to this cohort. Blueprint indicated that couples aged 25–34 on above median incomes would be able to afford a $500 000 house or unit under the scheme. Blueprint also noted that 25–34-year-old couples on below-median incomes would be able to afford the deposit under a superannuation withdrawal for housing scheme but could not comfortably service the resulting mortgage.
3.28Conversely, other submitters asserted that a superannuation withdrawal scheme should not be directed to younger Australians and that older first homebuyers would benefit the most from using their superannuation to purchase their first home.
3.29Mr Rice and Mr Ng suggested that the scheme be targeted at renters aged between 35 and 50 who are more likely to have built up enough funds in their superannuation account to purchase a house under the scheme.
3.30Further, Mr Rice and Mr Ng noted that this older cohort is more likely to have been renting for longer and risk renting in perpetuity if they do not purchase a house during this period:
If you're 35 to 40, you've rented all your life and you've shown no sign of being able to save for a property, the bank is not going to lend you money because you don't have a deposit, so those people are likely to end up being renters in retirement. They're the target group—people you can convert purely by helping them with a house deposit. But it must be of a sizeable nature. Giving them part of the deposit is not going to help that type of person; they won't be able to save the balance. I don't think we should look at this as a young person's policy.
3.31The majority of submissions on this issue expressed the view that a superannuation withdrawal for housing scheme should be limited to first homebuyers. However, other submitters supported expanding the scope of the scheme beyond this cohort.
3.32For example, Mr John Innes, Director and Chief Executive Officer of Futureproof Financial, stated that the scheme should be used to provide assistance to individuals seeking to get back into the property market, even if they already own a home. Mr Innes submitted that there are a number of Australians who have had their finances depleted by divorce, illness, retrenchment or other reasons and are desperate to re-enter the property market to finance their retirement.
Placing a limit on withdrawals
3.33Submitters also expressed support for placing a cap on the amount of capital which an account holder could withdraw under a superannuation withdrawal for housing scheme.
3.34The MRC supported the $50 000 cap on withdrawals proposed by the Coalition at the 2022 federal election as part of the Super Home Buyer scheme.
3.35Other submitters contended that this limit was too low and would limit the scope and effectiveness of the scheme. In their evidence to the committee, Mr Rice and Mr Ng submitted that the cap should be $150 000 for a single person and $200 000 for a couple. Mr Rice and Mr Ng argued that in many cases, an extra $50 000 would not provide first homebuyers with enough capital for a deposit and would not meaningfully increase homeownership. Mr Rice and Mr Ng stressed the importance of targeting the scheme to the individuals who would receive the most benefit under the policy, noting that this cohort would most likely require more than an extra $50 000 to purchase their first home.
3.36Mr Orford didn’t propose a particular limit, stressing the need to rapidly increase homeownership rates among younger Australians and proposing the ability to withdraw the superannuation guarantee component of savings.
Impact on the quality and sustainability of retirement
3.37Several submitters expressed concerns that a superannuation withdrawal for housing scheme would deplete the retirement incomes of first homebuyers, leading to a lower quality retirement for participants of the scheme and creating longer-term problems for future governments.
3.38For example, the McKell Institute claimed that a superannuation withdrawal for housing scheme would substantially reduce the long-term savings of participants while increasing the level of household indebtedness. On this basis, they reasoned that superannuation withdrawal schemes would render participants worse-off in the long-term, even considering the elimination of rental pressures and a lower purchase price.
3.39Other submitters disputed this claim, arguing that any reduction in superannuation savings resulting from this type of policy would be offset by the benefits of home ownership, which would leave participants considerably better-off overall.
3.40For example, Dr Murray explained that any money depleted from an account holder’s superannuation in the purchase of a house would be quickly recovered by the lack of rental expenses in a relatively short period.
3.41Dr Murray emphasised the superiority of housing as a source of retirement income, citing the beneficial rate of return on investment in housing and comparing this against the limited appreciation of capital in superannuation funds. Dr Murray rejected the argument that using superannuation for housing would deliver a lower quality retirement for account holders.
3.42Dr Murray also observed that superannuation is already being widely used by retired Australians to invest in housing, stating:
An ABS survey of over 8 000 people about their retirement provides an estimate that there would be in total about 490 000 retired people in 2020-21 who got a lump sum payment from their superannuation and used it to repay a mortgage, renovate, or buy a new home.
3.43Further, homeownership rates among older Australians continue to decline, with more retirees entering their retirement with a mortgage. Data from the Australian Bureau of Statistics (ABS) quoted in the Sydney Morning Herald indicates that the proportion of mortgage holders in Australians aged 55 to 64 has more than doubled, rising from 15.5 per cent to 35.9 per cent. The same data also revealed that the number of people with a mortgage at retirement age or older has increased from 3.2 per cent to 9.6 per cent.
Repayment options
3.44The Super Home Buyer Scheme proposed that funds withdrawn under a superannuation for housing scheme be repaid to superannuation on sale of the relevant property.
3.45Blueprint argued that a repayment mechanism is necessary, suggesting that the scheme be modelled off the Canadian Home Buyer’s Plan outlined in Box3.1.Blueprint and MRC supported the repayment of withdrawn monies over a defined period rather than on sale of a house, as per the Canadian scheme. This approach satisfies dual objectives of providing funds to facilitate the purchase of a home in the short-term and protecting retirement incomes in the long-term.
3.46Blueprint also recommended that participants repay both the actual amount withdrawn from their superannuation and the interest which the withdrawn amount would have accrued if it remained in the fund.
3.47In contrast, submitters opposed to repayment claimed that forcing participants to return the funds would place additional financial pressures on already vulnerable individuals.
3.48Mr Rice and Mr Ng explained that under a repayment mechanism, the participant would have to finance both their mortgage and any withdrawals, adding duplicate financial stress on first homebuyers. Mr Rice and Mr Ng submitted that a scheme would operate more effectively by better targeting a defined cohort and ensuring that the money is used efficiently. Further, the absence of a repayment mechanism would benefit those first homebuyers who plan on making more investments in the housing market over time.
3.49The CIS was of the view that any withdrawal scheme is akin to a shared equity approach where repayment is required upon sale of the property. Shared equity approaches are discussed further in Chapter4 of this report.
3.50Despite not expressing explicit support for a superannuation withdrawal for housing scheme, some submitters recommended modernising the current rules applying to early superannuation withdrawals.
3.51In its submission, HomeSuper characterised the current 22 per cent levy on early withdrawals as a ‘super mortgage stress tax’ and recommended that it be removed completely. Further, in his evidence to the committee, Mr Simon Jones, Founder and Managing Director of HomeSuper, highlighted that this levy creates little to no revenue for the government but substantially disadvantages account holders. HomeSuper argued that removing this tax would remove a strong disincentive for account holders to withdraw superannuation early but they would still have to satisfy the narrow eligibility criteria.