Younger Australians need access to super funds to help them buy a home

Just how self-serving and uncaring the superannuation industry is about their members' needs was further demonstrated last week by industry calls to prevent members from taking their benefits as a cash lump sum.

Any such action would aggravate the huge problems many younger Australians face in achieving home ownership. Already increasing numbers of Australians are reaching retirement age without a home or with a substantial mortgage. Their most attractive and most certain investment strategy is to use part, or even all of their super, to pay off their mortgage or even to purchase a home.

As highlighted previously, both our tax and age pension are biased in favour of home owners. The age pension system, particularly, provides meagre recognition of the additional costs faced by renters in retirement. Integrating the benefits of accumulating super and achieving home ownership is thus crucial to the introduction of any restrictions on taking lump sum benefits in retirement.

In addition, the age pension assets test, which reduces annual age pension entitlement by 3.9 percent of all assessable assets, does not encourage retirees to retain their capital, especially when interest rates are low. Term deposits yield at best 3 percent annually, an incentive to dissipate assets including by gifts within the family.

With increasing longevity, dissipation of assets, especially early in retirement, will further increase the demand for additional service and income support outlays. This is why there are substantial benefits for governments to change the tax rules to allow parents and grandparents to deposit their savings in a mortgage offset account in their names linked to their children's mortgages.

For the family there are huge benefits in that the assistance can be provided without losing access to the money and the return to the family is much higher than investing the money safely. Mortgage interest rates are at least 2 percent higher than that available on term deposits and the reduced mortgage interest payments are, unlike term deposit interest, not taxable.

There would be a cost to the government of lower income tax collections from term deposit income but only if the family opts to invest the money rather than to gift it to the family. As the Henry tax review argued, the income tax system penalises interest income recipients compared to recipients of capital gains where only half of the gain is taxable. Allowing for the impact of inflation and paying income tax at full rates, the real effective returns from term deposits are negligible in many cases.

There are compelling reasons to allow families to save for retirement and at the same time help their children achieve home ownership via mortgage offset accounts which families can call upon if and when needed later in life.

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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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