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Major $490,000 superannuation problem in housing crisis solution: 'Cost you double in retirement'

Aspiring homeowners could tap into their superannuation, under a policy floated by the Coalition.

Got a spare $100,000 in your super? Do you even have $100,000 in your super?

There’s a bold Coalition thought bubble that says you should be able to rip it out to buy a house. Indeed, one of the ideas is to allow you to withdraw your whole super balance for your first home.

You shouldn’t. Hear me out.

Nicole Pedersen McKinnon and broken piggy bank. Accessing superannuation concept.
Nicole Pedersen-McKinnon says prospective homeowners shouldn't raid their superannuation to buy a house. (Source: Supplied/Getty)

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While not all the information about the opposition’s new super-for-housing policy is yet available, it looks likely to be an updated version of the one it (unsuccessfully) took to the 2022 election.

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You had to have saved 5 per cent of the purchase price yourself but there were no restrictions on the house price you paid and no income caps to cut eligibility.

That time around, the plan was to let people dip into their super to the tune of $50,000 for a house deposit.

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This time, the amount you can take out may well be unlimited – a Senate committee dominated by the Coalition MPs has just recommended it, as well as modelled withdrawal caps of $100,000 and $150,000.

The committee also recommended allowing that slice of your first home to be rolled over into a second home, rather than having to be repaid into super.

This is significantly different to the existing scheme that allows you to save $50,000 into super – with your savings accelerated by the tax breaks – for your first home: the First Home Super Saver Scheme.

This scheme involves extra saving, not raiding.

But does being able to take out some (or all) of what’s already there sound good? It’s not – it’s terrible.

Here’s how you would pay not just dearly but doubly.

Let’s say you are 30 and take out the $100,000 mentioned above.

That $100,000 should – using a historic average 7.5 percent super performance – have grown to $214,837 by the time you are 67.

Instead, all of that money will be ruled out for your retirement – if you earn $90,000 and make no additional contributions, your balance would fall from $711,672 to $496,835.

Note well that you are ultimately sacrificing more than double the money you put into your home.

Super with $100k graph
Here's what your estimated super balance could look like with the $100,000. (Source: Supplied)
Super balance without $100k graph
And here's how much it would be if you took out the $100,000. (Source: Supplied)

And withdraw more and you will, of course, lose more.

If you took out a higher $200,000, it would end up costing you $429,675 (your balance would fall from $926,510 to $496,835).

That almost halves the super you will have at retirement.

Here’s the thing: Whenever any government has enacted any policy to give people a leg up onto the property ladder, prices have gone up by that much.

And there’s a bigger kick in the teeth too: if the amount you can draw out for a deposit is uncapped, this will clearly benefit higher earners, with larger balances.

“The poorest 20 per cent of renting households aged 25-34 have just $5000 in super, whereas the wealthiest 20 per cent have $70,000+," Brendan Coates, the Economic Policy Program Director at Grattan Institute, said.

The bottom line? House prices will pull out of reach of the people who can afford them least… even faster than they are now.

Modelling by the Super Members Council even suggests an average $75,000 increase to capital city prices around the country.

Yes, we need to reverse the concerning decline in home ownership. But raiding super – which hurts your future – to raise the price of housing is not the way.

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