Should Australians be allowed to tap into their super for homeownership?

More than half of Australians (56%) said they would access their superannuation early if they could, according to a Finder survey of 1,090 respondents.

Rising costs was the main reason for making a withdrawal, with one in six (17%) – 3.4 million people – saying it would help alleviate cost of living pressures.

This was followed by Aussies who said they would use their super to buy a home for themselves (15%), those who would put it towards an investment property (8%), and those who said they’d help buy a home for their kids (4%).

With Australia’s superannuation industry totalling $3.4 trillion, should Australians be able to access their hard-earned retirement contributions early for possible wealth generation or would they be “robbing Peter to pay Paul” (and the Australian taxpayer)?

Bianca Patterson (pictured above left), director of Calculated Lending, said while giving Australians access to their super could assist first home buyers enter the property market, it was “not the solution we should be looking for”. 

“Super was brought into Australian law for a reason – we do not have the financial resources to pay every person a pension once they reach retirement age,” Patterson said.

“Most people could not afford the lifestyle they live based on a government payment of $972 - $1464 per fortnight so super should be held for its intended purpose, to fund their retirement.”

Alison Banney (pictured above centre), superannuation expert at Finder, agreed saying early access to super wasn’t something that should be taken lightly.

“With the rising cost of living and the housing affordability crisis, the prospect of early access to super is a tempting one that is increasingly up for debate,” Banney said.

“Currently, there are a limited number of circumstances where you can access your super early such as financial hardship, compassion grounds and the First Home Super Save Scheme but just because you can doesn’t mean you should.”

_{Source: Finder survey of 1,090 respondents, June 2023}

Does the Superannuation Guarantee exist for the financially complacent?

Australia’s Superannuation Guarantee (SG) – which mandated a 3% contribution by employers into employees’ super funds – celebrated its 30th birthday last year.

A year after it was introduced, the Keating government’s “three-pillar” system of compulsory superannuation, the age pension, and voluntary retirement savings was deemed best practice by The World Bank.

Now with the SG rate scheduled to rise to 12% by FY25, more Australians look forward to a healthy retirement especially given they are expected to work and live longer into the future.

However, not all are happy with the current system with Simon Pressley saying while superannuation played an important role in society, it was also “littered with systemic problems”.

“The system fosters financial complacency,” said Pressley (pictured above right), head of research from buyers’ agency Propertyology.

Pressley said at its core, superannuation existed because an overwhelming majority of humans couldn’t be trusted to think big-picture and make sensible decisions with their money.

Given that 8% of Aussies surveyed in the Finder study said they would use the funds to go on a holiday and a further 59% admitting they didn’t know how much money they had in their super account, the statistics suggest he might be right.

“The so-called wisdom of the world therefore decided the best solution was to legislate that employers would be forced to pay an extra sum of money into a ‘vault’ that employees can’t access until their retirement years,” Pressley said.

“The brutal truth hurts some people, but it’s nonetheless the truth.”

Pressley said there would never be a more sustainable retirement strategy than good quality financial literacy and policies that encourage everyone to pursue financial independence.

“Sadly, Australia has always failed badly at this,” he said.

Lessons learned from the COVID-19 pandemic pilot policy

To help prove this theory, Patterson pointed to the recent early release policy during the pandemic.

To aid those hit by COVID-19, the federal government allowed two superannuation withdrawals: $10,000 between April 20 and June 30, 2020, and another $10,000 from July 1 to December 31, 2020. This program approved 3.5 million initial and 1.4 million repeat applications, averaging $7,638 per withdrawal and totalling $36.4 billion (APRA, 2021).

While withdrawers spent 7% more on groceries and 12% more on utilities on average, they also spent 16% more on discretionary shopping, and 20% more on entertainment compared to age and income-matched non-withdrawers, according to a UNSW study using CBA data.

At the time, it was also made clear that taking $10,000 from the fund of a 25-year-old, could mean the equivalent or $217,200 by the time they reached 65 based on average returns.

“It is commonly known that despite being required to sign a statutory declaration confirming hardship to access these funds, many Australians accessed this money and used it towards the purchase of homes, vehicles, future holidays and for cosmetic surgery procedures,” Patterson said.

“This is very recent evidence to prove that some Australians cannot be trusted to use these kinds of incentives for their intended purposes; I worry that those who would take advantage of the initiative without proper consideration of the longer-term effects would ruin it for those who would really benefit from it.”

What would early release of superannuation look like?  

While there are arguments for both for and against, Australians are reeling from a cost-of-living crisis that is arguably worse than during the pandemic as savings dwindle with rising rates.

All the while, Australia’s property market has made it increasingly difficult for first home buyers to get a rung on the property ladder.

So, if Australians do want early access to their super, especially for something that could generate wealth over time like homeownership, how could it be responsibly implemented?

Patterson said if it was brought into place, the government would need to consider those looking to take advantage of it in its rules.

“I foresee people incorrectly applying to access they money so they have funds to renovate, buy a nicer or more expensive home than they could usually afford, upgrade a vehicle after settlement or have a lower mortgage from the outset,” Patterson said.

“If allowed, I think the access to the funds should be conditional to it being repaid into super without interest, and that this repayment should be considered in the customers borrowing capacity with the lender.”

“This way they are borrowing from super in the short term to get into an affordable home they need, not into one they want but can’t quite achieve on their own.”

Pressley was empathetic to the plight of first home buyers who, aside from “enormous” stamp duty costs, face the “single biggest hurdle” of raising a deposit.

“Accordingly, I am in favour of a change which enables only first time property buyers to access up to a maximum of $50,000 of superannuation money, paid directly towards a deposit on a property,” Pressley said.

“It must be on the strict proviso that the buyer was matching it with no less than a dollar-for-dollar contribution. And they must first demonstrate financial responsibility and solid savings habits by proving that their own contribution is from consistent personal savings over a period of at least 12 months.”

Separate to this, Pressley said he would like to see legislation changed such that people who had already made “a series of good financial decisions” and accumulated $1 million or more in net assets (other than their family home) had the option to access an unlimited amount of their superannuation from age 55 onwards.

“As the system currently stands, the superannuation access age is fast approaching 70 years. There are plenty of people want to exit the workforce well before then,” he said.