There is significant pushback in Australia against allowing early access to pension funds to finance a first home purchase, with fears this could prove costly to the taxpayer and push up house prices.
Modelling from the Australian pensions industry indicates that allowing younger savers to access their superannuation pensions for this purpose could cost taxpayers in the country an estimated $1 trillion (Australian dollars).
This report, commissioned by the Super Members Council, shows that even if withdrawals at capped at $50,000 each this could still create a $300 billion cost to federal coffers across coming decades.
This research while focusing on Australia has potential ramifications for the UK. In recent years policymakers and regulators have sought to model many parts of the UK pensions market on Australia, which has had a compulsory DC pensions sector for 20 plus years, funded largely through employer and employees contributions.
This research feeds into discussions held in the UK about whether UK workers should be allowed to access auto-enrolment pensions to help get them on the housing ladder. This debate has come amid rising concerns about falling rates of home ownership, and the challenge this presents to retirement resilience, with far higher numbers of people likely to move into retirement in future in private rented accommodation.
This Australian modelling shows that the cost to the taxpayer will climb exponentially as first home buyers retire in future with less in their pension funds as a result, and therefore lead to more people being reliant on the taxpayer-funded state pension. Unlike the UK the state pension in Australia is means-tested.
The report says that to meet rising budget costs, future governments in Australia may have to increase taxes or cut services to offset the extra fiscal pressure created by the bigger age pension outlays.
Previous Super Members Council modelling also shows the policy would simply raise capital city house prices by $75,000 – forcing future generations of young Australians to wait even longer to buy.
Super Members Council CEO Misha Schubert said a growing body of expert evidence showed the policy would not lift home ownership rates – it would only make housing affordability worse while eroding retirement savings and leaving all Australians a tax bill.
“It’s economically reckless. It sets a policy trap for young Australians because it hikes house prices and blows a Budget blackhole in the decades ahead mostly by pushing up age pension costs – which every taxpayer would pay,” she said.
“Ideas to break the seal on super just leave people with less savings in retirement and a bigger bill for all taxpayers.”
“We all desperately want more Australians to own their own home, but this idea won’t achieve that. It’s unfair to lump the next generations of Australians with a policy that would only make the housing affordability crisis worse by driving up house prices.”
“We urge a sensible rethink on any policy ideas that undermine the strength and success of super to continue to deliver for all Australians in retirement.”
It adds that all credible economists confirm that a push enable people to raid their pensions for house deposits – whether capped or uncapped would just drive-up house prices – overheating the inflated housing market and pushing the dream of home ownership further away.
It says the modelling – completed by Deloitte – is based on a rigorous microsimulation model accounting for population change, super contributions and balances, tax and pension expenditures.
The post Australian pension industry pushes back on early access for home purchase appeared first on Corporate Adviser.
