Home ownership is essential for a comfortable retirement

Predictably, the superannuation industry is already attempting to deter the federal government from introducing even limited action to allow first-home buyers to gain access to part of their super. This is despite the fact that achieving home ownership is so essential in ensuring a comfortable retirement.

Put bluntly, the sooner home ownership is achieved, the greater the ability to build up super and other retirement savings. Of all the categories of taxpayers, renters fare worst, receiving no tax assistance to pay their rent and paying tax on the income from their savings.

By contrast, homeowners including those with mortgages get tax-free capital gains on their home and don't pay tax on the savings generated by paying off a mortgage. Clearly, helping renters to achieve home ownership, including by assisting them to gain access to their compulsory super, would help reduce this discrimination.

As the super rules now operate, following the 2013 changes removing protection of small accounts of less than $1000, many small accounts, particularly of part-time workers, end up being dissipated in fees and unrequired insurance charges. The super funds have been feasting on the fees from these accounts, greatly assisted by the government changes increasing the account balance to $6000 before funds are required to send lost super to the ATO.

In this process large amounts of small balances and lost super only enrich the super managers. The justification for removing the protection of small balances and lost super was that it would encourage people to consolidate all their super into one account.

The losers in this process are those with only limited super with no interest or little control over which fund their employer uses to pay compulsory super. This is why government action to allow access to buy a house would increase the interest that young people have in their super and the returns they achieve.

Compulsory super, especially at current levels, is also making life more difficult for home buyers by reducing their take-home pay. But in the future the government will also face even greater pressures because the compulsory super paid to private funds reduces the size of the tax base. In most other countries, employers have to pay compulsory social security contributions that are used to fund government pensions.

In Australia, compulsory super rules out taxing employees to help fund the age pension, which is a totally unfunded large charge on government revenue. As taxes on the working population inevitably increase to fund our ageing population, housing affordability problems facing younger Australians will increase.

Removing the fee rip-offs on small balances and lost super and allowing access to super accounts to reduce these pressures should be high-priority tasks.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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