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The sheer hypocrisy of different access to super rules

The Government is determined to limit early access to super to help borrowers pay down a mortgage.

It is striking that the consultation paper on this proposal makes little mention of the age pension, even though super and the age pension are closely linked in providing retirement income. Under our retirement system, the family home is exempt from the pension assets test. It means the family home can have any value and it will not reduce the pension.

According to the Retirement Income Review, some 15% of age pensioners live in houses worth more than $1 million, mainly in Sydney and Melbourne. By contrast a person’s super balance is an assessable asset and a large super balance significantly reduces the age pension. A homeowner couple with a combined super balance of $1million do not qualify for the age pension.

Moreover, the age pension is heavily biased against non-homeowners. Non-homeowners are allowed to have more assets than homeowners before their pension is reduced, but the income generated by these additional assets plus any Centrelink rent assistance is insufficient to cover today’s market rents. Age pensioners who are also renters are at significant risk of poverty in retirement.

The hypocrisy of current rules

One of the changes to super introduced by Treasurer Costello in 2007 gave people access to all their accumulated savings, tax-free, once they reach their preservation age and they meet a condition of release. Many people now use some or all their super to pay down their mortgage as soon as they can access it, tax-free after age 60. The reason is quite rational. It will minimise or eliminate the debt on their family home in retirement, while also maximising their age pension on reaching pension age.

Some see this as double-dipping; enjoying the tax concessions of super and enjoying the taxpayer benefits of the age pension as well. But if the purpose of super is to encourage dignity in retirement, this strategy saves many pensioners from poverty in their later years. This behaviour is now so entrenched, that many people enter retirement with higher debt levels than previously in the expectation they can access a tax-free lump sum from their super savings after age 60.

Therefore, to deny people access to lump sum withdrawals from their super in retirement would upset the plans of many people and the government should expect a significant political reaction.

The current proposal foreshadows a prohibition on allowing young people early access to their super to reduce or eliminate their mortgage. The reason is that early access will significantly reduce their super balance at retirement and make their dependence on the age pension more likely.

It is the height of hypocrisy for a set of rules that allows retirees to legitimately use their super to reduce their mortgage after age 60 and simultaneously increase their dependence on the age pension on retirement but denies young people early access to their super to reduce or eliminate their mortgage on the grounds that they will have with a lower super balance at retirement thereby increasing their dependence on the age pension. Whenever super is accessed to reduce the mortgage, surely the outcome is the same; there is less super available to provide income in retirement.

Moreover, if younger people are denied early access to their super to reduce their mortgage earlier, they pay more interest on that mortgage for longer while they wait to get access to their super. It also means that the industry funds collect more fees for longer while that money is retained within the fund. Some suspect that this is the real motive for this proposal.

The mathematics of compounding are clear: early access to super will certainly reduce the final super balance, but the point often overlooked in this discussion is that young people have time on their side. At their age they are able to “catch up” by making additional contributions later in life when there is more discretionary cash available. By contrast, people who reduce their mortgage only when super is available tax-free after age 60 are seldom able to make extra contributions.

How policy has evolved

Before 1992, when a person changed jobs, their super was paid out in full. That payout allowed families to put a larger deposit on a house and it often meant they were also able to pay it off sooner. From a housing perspective, early access to super was very positive. However, it meant starting a new job with little or no super, and without those earlier contributions and subsequent compounding of investment earnings they would have had to save really hard to make up the difference. It’s not called salary sacrifice for nothing.

The critical element at that time, however, was that were higher limits on concessional (before-tax) contributions. Employees over the age of 50 were able to salary sacrifice $100,000 per year. With more discretionary money available, that period when the kids have left home and the mortgage is greatly reduced, is a great opportunity to build super balances.

After super became compulsory in 1992 for all workers, the budgetary impact of super tax concessions increased dramatically, but the expected reduction in the cost of the age pension has taken much longer. One reason is that people can access their super tax-free many years before their super balance is assessed for the age pension. Another reason is that a home-owner couple, can have $419,000 in super and still receive the full age pension.

The tax receipts flowing from super increased significantly from 2017, when members with large super balances were forced to move the money in excess of the TBC from a tax-free pension fund to an accumulation fund paying 15% tax on income.

To limit the total cost of super tax concessions, however, the main strategy employed by successive governments has been to severely restrict contributions and increase the tax on contributions for high income earners. Perversely, the impact of these limitations on contributions has been to severely limit the size of the super balance that present day workers can now accumulate.

In other words, to limit the tax concessions flowing to large super balances in retirement, the government has severely limited the capacity of younger people to achieve financial independence. Successive governments have attacked the problem of excess tax concessions from the wrong end. The intention is clearly to prevent present workers from accumulating large balances, but it has also removed incentives for young people to save through super and it has had absolutely no impact on these existing large super balances in retirement. It is inequitable and leads to intergenerational envy.

At present, a couple who owns their own home with more than $935,000 in super, which is mostly their own savings, is independent of the age pension and save the taxpayer $40,000 per year for possibly 30 years. Any rational approach for the government would be to encourage people to contribute more rather than less to their super to reduce the cost of the age pension. And yet the trend since 2007 has been to restrict both concessional and non-concessional contributions.

Young people deserve the option of accessing super early

Super is a long-term project and it makes more sense to people if these forced savings are available to them as their needs change through their life cycle. Younger people should have the option to draw on their super balance, within limits, to assist with their housing needs to provide financial assistance at the time in their lives when they need it most.

People typically begin to concentrate on their retirement plans in their 50’s when they have discretionary resources and their kids and careers are relatively settled. That is why the current contribution caps should be relaxed especially for people over the age of 50 to allow them to make catch-up contributions.

By adopting a life-cycle approach to super savings, workers could have the best of both worlds.

Firstly, super could be used to help young people become homeowners and mortgage-free much sooner.

Secondly, relaxed contribution caps could help older people to gain financial independence in retirement with accelerated savings when they have the financial resources to save for their retirement and save the taxpayer the cost of the age pension. That really would be a dignified retirement.


Jon Kalkman is a former Director of the Australian Investors Association. This article is for general information purposes only and does not consider the circumstances of any investor. This article is based on an understanding of the rules at the time of writing.


May 24, 2023

"Firstly, super could be used to help young people become homeowners and mortgage-free much sooner."

More money would make homes more expensive, all else unchanged.

What would make homes less expensive is savings interest rates greater than inflation rate grossed up for the largest marginal tax rate.
= 3% / (1 - 45%)
= 5.45%

Then home prices would reduce and there would be an incentive for the smaller income tax rate payers to save and compound savings to buy a home without a mortgage.

While the mortgage interest rate grossed up for the tax rate remains less than or equal to the inflation rate grossed up for the tax rate then there is an incentive to borrow to buy immediately regardless of large home prices.

May 24, 2023

Jon, Another thought provoking article. It is always good to get a perspective from someone who understands the historical context. Would love to see you publish your piece on volatility risk vs longevity risk. That will certainly get some diversity of opinion.

March 15, 2023

I note that the banks are already considering your super when lending to someone for a home, hence pushing up house prices. Eg I'm sure at 53 I could pursuance a bank to give me a 40 year line, Not because they expect me to work full time until 93 years because they see what super I have and presume that I will have to use it all to bailyself out when I decide or are forced to retire. Probably the only solution here is to ban loan terms beyond 70 minus age or to consider the home value minus debt in the assets test for the old age pension. Everyone has an opinion depending on their personal circumstances but everything should be based on a level playing field with super a carrot to help us save (and invest aggressively) for the future

March 12, 2023

Early access to Super for anyone who wants it will just push up the price of housing even further and so the benefit of early access will soon enough evaporate. The whole purpose of Super is to make people build a nestegg for retirement, not benefit property investors with more capital gains on already overpriced housing

March 12, 2023

So C, the article is about policy inconsistency by age. Are you saying it is fine for someone who reaches the age of 60 and 'retires' to pay off their mortgage (ie access their super early) and go on the full age pension for 30 years, whereas it is not right for a 30 yo family breadwinner to buy a house? Super is supposed to complement the age pension, not replace it.

March 12, 2023

You forget that sometimes through misfortune, eg job loss or business failure, people reach retirement age and haven't been able to pay off their mortgage by then. If the only sizeable money they are left with is their Super, how else do they pay off the mortgage ? The only alternative would be to sell off the house.
Whereas a 30 year old with 35 years left in the workforce is not in the same situation and has ample decades to plan ahead for retirement.

March 13, 2023

The Liberals policy of using super for a home deposit was NOT "allowing early access". It was always considered part of the retirement sum total and had to be paid back eventually.

March 13, 2023

That might be the purpose but under current rules you can take all your Superannuation out when you have access to it and spend it, then go on the pension. Zero retirement benefits of having the best egg for retirement.

March 10, 2023

The object is to invest the money in super. Using the super money to pay off the mortgage provides a very good rate of return with the recent increase in the cash rate.
Adopting this would require measures to prevent (for example) redraw on the mortgage (unless the redraw were returned to the super fund which should not count against the contribution cap). If you wanted to reduce the mortgage until you buy that car, put your own funds into an offset account and then withdraw from that as you cannot from super.

March 09, 2023

"Any rational approach for the government would be to encourage people to contribute more rather than less to their super to reduce the cost of the age pension.":

'The' rational approach would be to Abolish Super, Abolish Age Pension Means Tests, Adjust Tax Rates and let the populace get on with saving or not - without coercion.

March 18, 2023

Dudley, we have one of the best systems in the world. Why would you want to condemn Australia to the wall of contingent pension liabilities crushing most western budgets.

The average person saves only if compelled, eg super. Just cause you might make save but you in the minority

This idea could hardly be worse

March 19, 2023

"we have one of the best systems in the world. Why ... condemn Australia to the wall of contingent pension liabilities crushing most western budgets.":
Australia is already "condemned" to pension "liabilities" crushing the budget. According to some, not taxing super disbursements is a 'costly liability'.

"The average person saves only if compelled, eg super.":
Seems they don't care to save - let them eat their cake instead.
In preparation of predictable empty bellied whining after quitting employment, the Age Pension provides generous welfare for those unaccustomed to budgetary efficiency.

Those who save have their cake and eat their equal share too.

March 09, 2023

Jon, Super is for Retirees to access at Retirement and for Young People to accumulate until Retirement - where's the hypocrisy?

March 09, 2023

Super is for retirement, not buying a house.

What a person uses a lump sum at retirement for is their business as the rules currently allow lump sum withdrawals and even if they did not you can withdraw all the money you have in pension phase in one hit, which is effectively the same as taking a lump sum, it is just treated differently for the transfer balance cap. Jon, the better argument would that you cannot withdrawal lump sums at all and there should be maximum percentages (eg double the minimum ones) for pension withdrawals.

Indeed, the pre-Costello system was much better as you had to convert you super into a pension at pension age and you could not draw down more than set limits (you could however withdraw lump sums and IMO this should be stopped). The pre-Costello system was much fairer as his changes ie tax free super withdrawals, no need to convert to pension, etc only benefited the rich.

The problem with housing is complex and no one will tackle the real issues ie CGT exemptions, government payment exemptions (eg child care, parenting payment, pensions, etc) negative gearing, house sizes (double what they were 20 or 30 years ago), etc and the failure of people to actually think they need to save for something anymore and no one is prepared to tackle the real problems

March 09, 2023

One thing is clear from your article, the Coalition has tried every trick in the book to destroy super since SGC started in 1992. This home access policy is just the latest salvo.
You overlook two key issues
1. People don’t save, they spend, so any access to super before retirement goes to current consumption. How many people who accessed their super during COVID used it as a deposit on a home? A number little more Zero.
2. Using super to fund property purchases just adds more fuel to the property bonfire. We saw that every time an incentive was provided eg stamp duty exemptions, and the Daddy of them all, CGT discounts on negatively geared property.
It’s like a carry in front of a donkey. The donkey never gets the carrot!

March 09, 2023

Another push for the failing property ponzi scheme that's sending this country to its knees? Not a good idea. Though it wouldn't surprise me to see it being adopted...

March 09, 2023

Young people accessing super to buy a home just pushes up house prices. The home being exempt from the age pension is an issue though. I have family members in that exact scenario - home worth over $2m but getting part or full age pension. Other family members in regional centres bought houses 50 years ago for similar prices, but now only have a home worth around $500k. They got paid less based on where they live (equal work for equal pay issue), so retired with less savings aswell. Effectively the age pension means the capital city people's children get a bigger inheritance. Contribution caps - we can currently put in $27.5k concessional and $110k non concessional per year. I don't agree that people who have more spare cash than this should be given tax concessions to help them get more into super. The money not contributed to super is still theirs, they just have to invest it in their own name and pay a little tax.

John Fletcher
March 09, 2023

While I don't disagree with some of Jon's comments, the problem I see with his main arguement, is that young people could abuse the system terribly. Not even with intent to do it wrong, just poor decisions. Someone over 60 paying off their home would be unlikely to then redraw against it as they approach retirement and know that their work income is likely to stop in a few years. Someone who is 35 years old could withdraw the money from super, pay it off the house and then 2 years later redraw it to buy a new car or have a holiday; the thought process being, 'I have another 30 years to save it up again'. That is not an unlikely scenario. I have been a financial planner for 30 years and have seen all sorts of human behaviour. That of a 60 or 65 year old is very different to a 30 to 40 year old. It is not safe to assume that both age groups of people will behave the same, hence the different rules for different ages.

March 09, 2023

Sounds good in theory, but would early access for housing simply stimulate the housing market leading to increased housing costs? Any benefit would quickly evaporate through higher mortgages. A more material and foundational change needs to happen, probably re property investing and the tax incentives for investors. A better balance needs to be struck - housing is a basic need and the priorities of owner/occupants needs to be prioritised over owner/investors. We all need to make a sacrifice for future generations...

March 19, 2023

Scooter, it’s hard to argue against your comments in principle however they do have one major flaw. We presently have a rental crisis. Boomer landlords already selling as they age as it’s getting too hard.

Reducing the supply of landlords by making it harder during a rental crisis would be disastrous.

What needs to happen is the removal of the 20-30% government taxes on a new house. One idea would be no gst for a new house built by a first home buyer.

Removal of restrictions, esp for affordable housing, removal of land tax for below market rentals, more land release, more transport infrastructure to support regional development.

Note the common theme. All 100% in the hands of the govt. punitive changes against investors will make the situation worse. B not better.

March 19, 2023

Why have all housing subsidies for first home buyers only though? A lot of divorced people out there that rent now but never received any sort of government support or subsidy when they bought the marital home


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