Chapter 5Superannuation savings schemes
Introduction
5.1Superannuation savings schemes allow account holders to make defined voluntary contributions to their fund, often attracting tax concessions, which they can later withdraw to purchase their first home. The intent of these schemes is to provide prospective first homebuyers with a vehicle to save for a first home deposit and open up access to additional capital to finance this deposit.
5.2Australia has implemented a superannuation savings for housing scheme in the form of the First Home Buyer Super Saver Scheme (FHSSS).
First Home Super Saver Scheme
5.3In December 2017, the Turnbull Government implemented the FHSSS, allowing first home buyers to save for a deposit using their superannuation account. The scheme provides first home buyers with the option of making voluntary contributions (both before-tax concessional and after-tax non-concessional) into their superannuation fund to save for their first home.
5.4First homebuyers can then apply to withdraw these voluntary contributions to finance the purchase of their first home subject to several eligibility requirements. These include that the account holder is 18 years of age or older, is a first home buyer and has never owned property in Australia, intends to occupy the property for a minimum of 6 months as soon as practicable after purchase, intends to purchase a property which is located in Australia and has not previously made an FHSSS request.
5.5Account holders seeking to release funds under the FHSSS who have previously owned property in Australia may still be eligible if they have suffered financial hardship which resulted in loss of ownership of all of their previous property interests. Events amounting to severe financial hardship under the FHSSS include, bankruptcy, divorce, separation from a de-facto partner, or a relationship breakdown, loss of employment, illness or being affected by natural disaster.
5.6Under the FHSSS, an eligible participant can apply to have a maximum of $15 000 of their voluntary contributions from any one financial year categorised as contributions eligible for release under the FHSSS. An account holder can withdraw up to $50 000 in categorised voluntary contributions across all years but can only request a release of funds under the FHSSS once.
Views on super savings schemes
5.7Generally, submissions received by the committee expressed broad support for the FHSSS and stated that the scheme had operated well since its introduction in 2017 and has made the housing market more accessible for first homebuyers.
5.8For example, Blueprint Institute (Blueprint) expressed support for the FHSSS, submitting that participants of the scheme had better financial outcomes in the long-term. Blueprint submitted that participants would remain better off as long as they were able to own a home for longer without compromising their superannuation savings.
5.9Blueprint noted that between 2019 and 2022, 37 100 requests were made under the scheme with payments worth $415.1 million made to participants during the same period. Blueprint remarked that the average savings released increased from $12 000 to $14 000 in the same period and individuals aged 26 to 30 were the most likely to participate.
5.10Menzies Research Centre (MRC) expressed support for the FHSSS, claiming that the scheme had accelerated deposit savings for 27 600 prospective first home buyers. In his evidence to the committee, Mr James Mathias, Deputy Executive Director of the MRC, characterised the FHSSS as a ‘good first step’ towards increasing rates of homeownership among young people by allowing them to access the tax and savings benefits of superannuation.
5.11Some submitters recommended that the scheme be expanded, in particular that the scope and scale of the FHSSS be enhanced to provide additional help to a greater number of first homebuyers. The committee was advised the scheme should also be streamlined and simplified to improve its take-up and accessibility.
Removing contribution and withdrawal caps
5.12Submitters recommended that the scheme could be improved by removing the caps on voluntary contributions and total withdrawals.
5.13Mr David Orford expressed strong support for the FHSSS, stating that the scheme had encouraged younger Australians to save for a deposit and provided them with access to the capital required to purchase their first home. However, Mr Orford also expressed concerns that the scheme was too limited in its application and recommended that it be expanded. In his submission, Mr Oxford expressed support for increasing the cap on voluntary contributions which can be withdrawn as capital for first homebuyers to encourage younger Australians to put more money towards the purchase of their first home.
5.14Mr Orford also proposed that the government explore the idea of establishing a separate government-run fund dedicated to savings for housing which is quarantined from retirement savings. When outlining this proposal, Mr Orford referenced the First Home Savings Account (FHSA) introduced by the Canadian Government. Under the FHSA, prospective first homebuyers 18 years of age or older can contribute up to $40 000 tax-free over a 15-year period to a dedicated savings account for the purpose of buying their first home. Mr Orford recommended that the government expand the FHSSS along the lines of the Canadian model.
5.15Blueprint advised the committee that the scheme could be improved by abolishing the $15 000 and $50 000 caps on the annual and overall level of voluntary contributions respectively. Blueprint argued that planning a ceiling on voluntary contributions, which could be reserved for savings for housing under the scheme, arbitrarily minimises the benefits available to first homebuyers.
5.16Blueprint further noted that the $50 000 cap on overall contributions eligible for withdrawal under the scheme would only meet a third of the total amount required for a deposit on a median priced house. Blueprint submitted that individuals who have the means and are willing to save more are unfairly penalised by the caps and that any government revenue lost by abolishing these limits would be insignificant.
5.17This view was echoed by Mr Michael Rice and Mr Jonathan Ng in their evidence to the committee. Noting that the median asking price for a unit in Sydney is approximately $794 000, Mr Rice and Mr Ng expressed doubts that $50 000 in voluntary contributions would make a meaningful difference for first homebuyers. Accordingly, Mr Rice and Mr Ng proposed that the cap be increased.
5.18Mr Mathias submitted that the FHSSS should be expanded to allow prospective first homebuyers to withdraw mandatory contributions in addition to voluntary contributions, effectively transforming the FHSSS into a superannuation withdrawal for housing scheme. That policy option is discussed in greater detail in Chapter 3 of this report.
Refine eligibility criteria
5.19Various stakeholders expressed support for streamlining the application process by better targeting the eligibility criteria.
5.20Mr Rice and Mr Ng submitted that the current eligibility criteria for the scheme are too broad and should be means tested to prohibit the use of the scheme by high income earners and others who do not require financial assistance to purchase property. Mr Rice and Mr Ng also noted that the FHSSS is open to non-citizens and encouraged further study into the potential inflationary effects of failing to limit the scheme to Australian citizens and residents.
5.21Mr Orford noted the scheme comes with administrative complexities, legislative risk and unforeseen consequences that may see extra savings locked into superannuation. He recommended that the government relax the eligibility criteria and ensure there are no penalties for participants who do not meet all the requirements and allow them to access those savings for the intended purpose.
Simplify and clarify the scheme
5.22Several submitters expressed concerns that the take-up of the scheme was limited by its overly technical and complex nature, including multiple layers of overlapping taxation applying to the withdrawals, and relatively low levels of financial literacy among young people.
5.23For example, Blueprint submitted that to calculate the amount they wish to withdraw under the scheme, participants have to take into consideration the 15per cent tax on contributions entering the fund, the compounding interest of these contributions when in the fund, and then subtract their marginal tax rate minus a 30 per cent rebate from their requested withdrawal amount. Blueprint considered this complexity as limiting the number of prospective participants of the FHSSS, diminishing the scope and benefits of the scheme.
5.24To reduce this complexity, Blueprint suggested that the Government amend the FHSSS to remove the tax on funds withdrawn under the scheme. Blueprint asserted that under this change, if the participant is on a median income, they pay a reduced rate of 2.5 per cent on any funds withdrawn under the scheme. Blueprint submitted that to prevent higher income earners from taking advantage of this change, the government could include an upper limit on incomes in the eligibility criteria for access to the scheme.
5.25Submitters suggested approaching the issue of complexity by creating free, online tools for FHSSS participants to improve their financial literacy and calculate their required withdrawal amount and their expected tax liability. Blueprint recommended that this assistance also be provided to financial planners so that they could better advise their clients on how to navigate and best use the scheme.
5.26Similarly, Mr Orford suggested that the government explore establishing Financial Education Centres to provide targeted advice and financial knowledge to younger Australians. Mr Orford submitted that these centres could teach younger Australians how to budget and minimise debt, encouraging this cohort to save more for housing and retirement.