The issue of superannuation and housing is one that rears its head on a regular basis and as Prime Minister Scott Morrison’s latest superannuation election schemes prove, this subject clearly isn’t going to disappear anytime soon.
Whilst there might be some merit in the government sitting down with the superannuation industry to work on ways that it can help boost supply of housing stock across Australia, landing a major policy reform on the industry a week before the election without industry wide consultation is not just bad form, but bad policy.
What this populist pitch doesn’t take into consideration is the impact on the retirement savings of the Australian population as individuals, but also collectively the impact that this policy could have on the way superannuation funds invest and, therefore, the potential returns for all Australians.
The mandatory nature of our compulsory system and the strict preservation rules of our super system are the envy of much of the world. They allow superannuation funds to invest in large long-term projects such as major nation-building infrastructure that are not only good for returns and for diversification but also good for job creation. These include investments in projects such as affordable housing, which funds such as HESTA and Aware Super have been leading on.
The other issue is that once the system is opened for non-retirement purposes, where does it stop? In 2020, we saw the government enact policy to allow access to super for Covid-19 assistance. Funds had to deal with large swathes of money being taken out of the system with many members accessing the maximum amount, which in some cases was just because they could. So, what’s next? At the end of the day, if we don’t save enough in superannuation for our retirement, it will cost us all more out of the public purse through higher aged pension costs.
One of the benefits in superannuation funds having scale is the ability to invest for the long term and take large investment bets, often in the unlisted markets. Continuing to open up the system means funds will need far more liquidity, which will impact returns. In addition, funds need to have a stable super system and policy environment to provide them with the confidence to make these investments, and the constant tampering with the rules does not provide this.
For the members themselves, with average balances for someone aged under 35 less than $35,000, taking out a large chunk to access housing will also impact the compound effect of savings early in the cycle, which is of course important to building wealth.
It is easy to understand that the government sees a big pot of money in the super system, and it is tempting to want to access this to solve other social and economic problems. However, if the government wants super to play a role in addressing housing supply and affordability, there are potentially several other solutions that could work. But sitting down with the industry and having proper consultation so that the pros and cons and unintended consequences can be considered is vital.
In my own view an alternative solution might be to think about how superannuation could be used as security against a deposit, provided you meet other criteria, so that money isn’t pulled out of the system, although even that idea isn’t without its problems. Other solutions could be around how the industry invests in rent to buy or build to rent schemes across the country, which are popular in countries such as the United Kingdom.
Equally the superannuation industry needs to be more innovative and to work with government on how to be part of the solution when it comes to long term structural issues within the Australian economy and society more broadly, and not just be an industry whose answer to everything is ‘no’.