Pension policy hits renters
CEDA's proposal to allow first-home buyers to access their superannuation has been harshly criticised by the self-serving superannuation industry. CEDA's report emphasises the need to recognise that both superannuation and home ownership are crucial for a comfortable retirement.
The current retirement system is built around home ownership. Retiring without owning a home guarantees a substandard level of living, and the situation of renters will deteriorate even further under the new 2017 age pension assets test.
Renters will be eligible for maximum fortnightly rental assistance of a meagre $120 and an additional exemption of another $200,000 from the assets test, which at current interest rates would generate around $200 fortnightly.
This combined maximum $320 fortnightly assistance, as well as the fact that anon-homeowner couple with assets in excess of $1,023,000 will in 2017 not be eligible for any pension, illustrates just how harshly renters are treated.
At today's interest rates, $1,023,000 of assets is unlikely to generate even the minimum age pension annual income of about $33,000 available to a retiree with an exempt home worth as little as $700,000 and with $375,000 of other assets.
As Singapore so successfully demonstrates, savings policy needs to integrate the two objectives of achieving home ownership and superannuation.
The harsh reality for younger Australians is that our tax system and compulsory super make achieving home ownership difficult. Even with family assistance to raise a deposit, unlike in other countries - including the US where interest on mortgages up to $1million is a tax deduction - interest costs and repayments come out of after-tax incomes.
Income tax rates of 34.5 to 49 per cent, and 9.5 per cent or more of gross salary directed into super, adds to the financial hurdle of achieving home ownership. Without fundamental changes to both age pension and superannuation arrangements, the financial situation for both retirees and the government will deteriorate as more people struggle to get into their first home.
Political and superannuation industry pressure for workers to increase their super contributions does not help the situation. Unless superannuation money can be used to help achieve home ownership, Australians will vote with their feet and put the highest priority on achieving outright home- ownership, including via negative gearing, before investing elsewhere. This is why changes such as those proposed by CEDA warrant serious consideration as a way to help ordinary Australians accumulate retirement assets.