Government Senator's Dissenting Report

1.1The first interim report of this inquiry recommended superannuation be released to buy a home. This demand-side policy would inflate house prices, reduce retirement income, and would not be accessible to young people and those on low and middle incomes who have smaller superannuation balances.

1.2This second interim report recommends that superannuation be released to allow the offset of a mortgage. This demand-side policy would deplete retirement income and have an inflationary impact on house prices.

1.3Housing policy interventions must be focused on supply and building more homes, not inflating house prices with demand-side policies and super early release schemes which harm the people who needed to be helped the most to access the housing market.

‘Super for mortgage offset’: Doesn’t work, a massive risk, won’t help

1.4Using a superannuation balance to offset a mortgage would not help a single person to buy their first home, nor would it result in a single new home being built.

1.5The proposed scheme is a massive risk to an individual’s income and financial security in retirement.

1.6It’s also an entirely unworkable thought-bubble that has numerous issues and hurdles that would be complex to address, if it was to even work at all.

Doesn’t help to buy or build a single home

1.7The proposed scheme to use superannuation for a mortgage offset would not help a single person to buy a home, and it would not help to build a single new home.

1.8Mr Ng noted the proposed scheme would not improve housing affordability, and would have an inflationary impact on house prices advantaging existing homeowners to buy investment properties:

The proposed scheme will not improve housing affordability for persons who are currently struggling to enter the property market. This is a function of the offset account not being allowed to be taken into account when assessing loan capacity/serviceability, which is desirable to avoid having a direct and inflationary impact on house prices. However, it does have the potential to have an indirect inflationary impact on house prices because once a homeowner has taken advantage of the Proposed Scheme, they could then be in a position to purchase an investment property which could have an inflationary impact on house prices.[1]

1.9If this proposal could be implemented, it also has significant equity concerns as individuals with higher superannuation balances would be more readily able to take advantage of the scheme to lower their mortgage repayments. Individuals with lower superannuation balances would be at a disadvantage.

1.10Increasing housing supply is the solution to housing affordability and relieving rental pressures, not using retirement savings to inflate the housing market, making people poorer and pricing even more people out.

1.11There is however a role for superannuation in the housing market, and it is to be institutional investors contributing to long-term supply efforts that generate returns for superannuation members at the same time.

1.12The reckless demand-focussed policies of the Coalition will not address the core issue of housing supply and will only inflate prices, creating more competition among the lucky few who will have large enough superannuation balances to compete in an inflated housing market.

A massive financial risk

1.13Using an individual’s superannuation balance to offset a mortgage, if it was even able to be established, presents many financial and personal risks.

1.14A guaranteed and concerning outcome of this proposed scheme is individuals having much less superannuation income for their retirement due to the loss of compounding returns while the balance is held in the offset account.

1.15Even superannuants who do not participate in the proposed scheme would be left with less super due to a need for superannuation funds to hold more liquid assets which generate lower returns for all members.

1.16Mr Briggs, CEO of the Financial Services Council, commented on the investment decisions that would impact superannuation members’ balances:

As soon as you require a superannuation fund to either transfer or allocate some resources to a particular investment, you impact its capacity to make investment decisions in the best interests of members.[2]

1.17As individuals miss out on investment returns in superannuation, this will have impacts on the broader retirement system. It will likely lead to increasing reliance on the Age Pension, which will need to be funded through higher taxes or reductions in expenditure. Mr Ng also noted the budgetary and revenue impacts this proposed scheme would have:

The lack of investment earnings on funds held in a superannuation mortgage offset account means the Government does not receive the tax associated with the foregone investment earnings. This is further exacerbated by the potential reduction in size of the overall superannuation system.[3]

1.18In the event of foreclosure, a person would likely lose their home and would have lost returns on their superannuation balance in the time it was in an offset account. This would have disastrous personal and economic outcomes. This risk of an individual losing so much of their savings should be reason alone to force policymakers to reconsider what the benefits of this proposal are. It would also make financial institutions and superannuation funds wary about engaging in this proposal.

1.19APRA submitted on these issues, and noted their concerns that the proposed scheme could be exploited by scams and fraud activity:

Under either approach, there is a potential for a mortgage offset scheme to be subject to scams or fraud and legislative safeguards would be necessary to manage this risk.[4]

Does not work

1.20Evidence to this committee was clear that this complex proposal to use a superannuation balance to offset a mortgage has significant implementation hurdles.

1.21No case was made for how a lender, or a superannuation fund could participate in this proposed scheme without there being significant complexities and wide-reaching consequences for homeowners, lenders, superannuation funds and their members.

1.22Critically, no lenders or superannuation funds expressed any interest in offering this proposed scheme to consumers at all.

1.23The Australian Prudential Regulation Authority’s (APRA) submission noted the complexities of administering this proposed scheme, particularly in relation to obligations in the Superannuation Industry Supervision Act 1993:

If funds remained inside the superannuation system while being used as a mortgage offset, a challenge would be that while the superannuation trustee would remain the legal owner of the funds, the trustee would not be able to generate a return on the fund while they are used for offset purposes.

This would have implications for obligations imposed under the Superannuation Industry Supervision Act 1993 including the best interests financial duty (section 52), the sole purpose test (section 62) and the prohibition on financial assistance (section 65).

Further, an arrangement where the funds remain within the superannuation system but are used as an mortgage offset is likely to be complex and difficult to administer due to multiple parties (lenders, trustees, members) to the arrangement with potentially competing interests in relation to the offset fund … if the fund were moved outside of the superannuation system, the possible impact on the liquidity of the superannuation funds and how the trustees would manage this would need to be considered.[5]

1.24While being a supporter of ‘super for housing’, actuary Jonathan Ng was conscious of the difficulties such a proposal would present:

Although the proposed scheme has considerable merits, it is not without material implementation hurdles that will need to be overcome.

Implementing the Proposed Scheme will have many operational hurdles that are likely to be expensive for mortgage lenders and take a significant amount of time to overcome (e.g. creating the new product, establishing processes to restrict transfers only to/from complying superannuation funds to prevent leakage from the superannuation system, establishing appropriate regulatory framework etc).[6]

1.25Ms Michelle Levy appeared at the public hearing and noted her concerns about the complexities of the proposal:

I do worry about complexity... I think the more complex, the more things that can go wrong and the greater the exposure for members.[7]

1.26Ms Levy further commented on the role of superannuation funds, and her views of proposals to use superannuation funds to solve a wide range of issues:

I keep coming back to the point that these are trusts. It's not a bank. They're not insurance companies. They don't have a whole lot of capital, and they don't have shareholders … That means that everything we ask a trustee to do exposes the members of their fund to the risk of having to satisfy a liability or that there is no way of satisfying that liability.[8]

Undermines universal superannuation

1.27This proposed scheme and other ‘super for housing’ proposals considered by this inquiry undermine the importance of the superannuation system to provide income for a dignified retirement.

1.28It is widely agreed that superannuation cannot and should not be used as a solution to all public policy issues.

1.29The first interim report of this inquiry explored how superannuation could be released to buy a home. This proposal would inflate house prices, reduced retirement incomes, and was not accessible to young people and those on low and middle income who have smaller superannuation balances.

1.30Mr Briggs commented on the importance of preservation being a core pillar of the superannuation system at the public hearing:

Preservation is critical to the superannuation system achieving its broader objective, which is to provide income to people in retirement. If you undermine that principle of preservation, at the very least, with contribution levels at the level they are, it's not designed to take care of every single need a person should have.[9]

1.31Super Members Council (SMC) submitted to the inquiry about the importance of preservation and the impact of early release policies:

SMC is opposed to further relaxation of the early release rules because — it would be contrary to the purpose of superannuation, and — there is strong evidence to show members are better off with preservation intact.

Policies expanding the grounds for early release - be it for housing, purchasing household appliances, or to deal with immediate cost of living pressures - would similarly result in lower individual retirement balances and increased pressure on the tax-funded Age Pension.[10]

1.32Similarly, The Association of Superannuation Funds of Australia (ASFA) submitted:

Early release of superannuation serves to erode the eventual outcome for members – the loss of the amount withdrawn, exacerbated through the loss of compounding returns, serves to reduce significantly the amount of a member’s final end benefit, needed to finance their retirement.[11]

Conclusion

1.33This new proposed scheme to rip open superannuation balances to offset a mortgage is just as bad as proposals in the first interim report to use superannuation balances to buy a home.

1.34Because supply not demand is the housing solution, the Albanese Government has committed $32 billion over the next decade for the construction of more social, affordable and private dwellings including the recent announcement of 13,700 homes to be built via the Housing Australia Future Fund (HAFF) in partnership with institutional investors like superannuation funds.

Senator Jess Walsh

Deputy Chair

Labor Senator for Victoria

Footnotes

[1]Mr Jonathan Ng, Submission 40.1, p. 9.

[2]Mr Blake Briggs, Chief Executive Officer, Financial Services Council, Proof Committee Hansard, 30August 2024, p. 12.

[3]Mr Jonathan Ng, Submission 40.1, p. 9.

[4]Australian Prudential Regulation Authority (APRA), Submission 29.1, p. 2.

[5]Australian Prudential Regulation Authority (APRA), Submission 29.1, p. 1.

[6]Mr Jonathan Ng, Submission 40.1, p. 9.

[7]Ms Michelle Levy, Proof Committee Hansard, 30 August 2024, p. 6.

[8]Ms Michelle Levy, Proof Committee Hansard, 30 August 2024, p. 7.

[9]Mr Blake Briggs, Chief Executive Officer, Financial Services Council, Proof Committee Hansard, 30August 2024, p. 11.

[10]Super Members Council, Submission 16, p. 7.

[11]Association of Superannuation Funds of Australia (ASFA), Submission 27, p. 6.