Housing is the fourth and most important pillar of the retirement income system, and as such, contributions would be better put towards this than into superannuation, according to Ron Bird, professor at the University of Technology Sydney (UTS) business school.
Bird’s research measures the impact of superannuation on lifetime consumption and the likelihood that a household will run out of funds, finding, on this basis, that it is largely ineffectual on the well-being of households across the whole earning spectrum.
The worst aspect of the system is the regressive nature of the associated tax concessions and the fact that it is a hurdle to home ownership, which is the key to “survival” for low-income families, Bird told delegates at the Paul Woolley Centre for the Study of Capital Market Dysfunctionality Conference.
“If the government really wanted to assist people in retirement, it would remove all tax concessions on compulsory super contributions and put the savings towards housing assistance for low income households,” Bird said.
However, ASFA’s director of research, Ross Clare, who was at the event, was unconvinced by Bird’s assessment.
“Without the compulsory savings of superannuation, many Australians would not save significant amounts either to invest in housing or for their retirement and/or to provide for major life costs including significant disability,” Clare said.
He added that ASFA believes housing affordability is best addressed through policy measures directed at making housing more affordable, including the release of land, rezoning, the lowering of stamp duty, the funding of assisted housing and other measures designed to reduce costs and increase supply.
“Policies that merely increase the capacity of individuals to pay for housing often have the effect of driving up housing prices, eroding any positive impact on housing affordability.”
According to Clare, at the current compulsory super contribution rate of 9.5 per cent, and even at the eventual rate of 12 per cent, most individuals do not have sufficient leeway in their retirement savings to finance the purchase of a home without seriously compromising their eventual retirement income.
“Therefore, if housing affordability was connected to the super system, the current contribution rate of 9.5 per cent would need to be increased to cover the retirement savings shortfall. In the absence of higher contribution rates, the impact on retirement savings could be devastating.”