Super for housing could hold implications for investment returns: SMC

Allowing early withdrawals of superannuation for a house deposit could go on to lower super’s performance and strength of returns in the long term, the Super Members Council (SMC) has warned.

In a new report, the industry body outlined countries with more relaxed preservation rules have lower investment returns, which impacts all members at retirement, regardless of whether they dipped into their superannuation.

“Any policy which allows early withdrawals could force super funds to hold more liquid assets, lowering the long-term performance and strength of returns from super – which would affect the retirement balances and income of millions of Australians,” the report said.

Looking at New Zealand, which allows early withdrawals from its KiwiSaver scheme for home deposits, the SMC said KiwiSaver balanced options have delivered returns around 1.14 per cent per year less than Australian balanced MySuper products over 10 years. The difference could mean as much as $130,000 less at retirement for a typical 30-year-old.

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KiwiSaver returns were also 0.79 per cent per year lower than Australian MySuper options over the last decade when all investment options were considered.

According to the SMC, as Australia’s national savings pool grows to $3.9 trillion, the temptation has grown for policymakers “to seek to use super to fix other unrelated policy problems”, with super for housing the latest in a “long line of ideas to divert super from its key purpose”.

Speaking at an industry event on Tuesday, SMC CEO Misha Schubert said Australia’s superannuation system is helping bolster the retirement outcomes for millions of Australians, lifting incomes for retirees, and also playing a role in powering Australian businesses.

However, its success is built on the policy foundations of preservation, compulsion, and universality, she said.

“Australia has built a transformative policy miracle in super. It is the envy of the world,” Schubert said.

“Both major parties of government have contributed to super’s success – and both of them have a duty to safeguard it.”

Reflecting on the Coalition’s stance to allow access to super towards a house deposit, Schubert said: “Strong and enduring bipartisanship on the fundamentals of super is essential to ensure millions of Australian retirees have enough income to live on.”

Impact on the economy

The SMC’s latest report also indicated a byproduct of the superannuation system has been a “deep well” of investment capital that can be invested in Australian businesses and infrastructure.

In the 2022–23 financial year, profit-to-member super funds received about $80 billion worth of super contributions, it said, with these inflows helping provide a “steady supply of capital unaffected by volatile economic cycles”.

Over the next five years, the SMC estimates profit-to-member funds will invest a further $180 billion into the Australian economy, which hikes up to over $203 billion when all APRA-regulated entities are considered.

Under this projected superannuation funds investment pipeline, infrastructure investments could see an additional $30 billion from industry funds and $34 billion from all APRA-regulated entities. Similarly, looking at equity investments, these numbers could stand at almost $120 billion and $140 billion, respectively.

“But, these figures are predicated on policy settings remaining stable,” the report said.

“Adverse policy changes, such as withdrawing super early for housing, would reduce investment in the local economy, because super funds could have to carry more cash to meet withdrawals.”

With this, SMC CEO Schubert also urged Australia’s business leaders to speak up on the importance of safeguarding Australians’ savings for retirement “to avert risks to the incomes of retirees, of fiscal damage, higher taxes, and a weaker capital base for Australia’s economy”.

“We’re now seeing super’s potential to transform the economic fortunes of our nation. And all of us have a responsibility to nurture Australians’ super, grow it and strengthen it for future generations,” she said.