The Turnbull Government plans to let first-home buyers access up to $30,000 in superannuation for a home deposit. However, according to a recent study conducted by Industry Super Australia (ISA), this move could drain superannuation accounts.
ISA Research data found the government’s First Home Super Saver Scheme (FHSSS) had marginal benefits for first home buyers. Plus, it could threaten their retirement savings. Key research findings are:
- Housing affordability may further decrease under the scheme. This decrease is due to the expected boost to low to middle-income property buying. Thus, dwelling prices could overinflate further.
- Releasing superannuation funds could encourage Australian households to take on greater debt. This move could see asset risk rise in the property market.
- The scheme gives Australians access to $2.3 trillion in retirement savings. However, this money needs preservation to help fund living costs during retirement.
- While a cap applies to the scheme, future governments could alter these rates. Future governments may also allow the release of funds for health purposes, aged-care, or medical expenses.
Briefly, the FHSSS allows first home buyers to salary sacrifice $30,000 into their superannuation account. Although, this contribution has a cap of $15,000 per year.
- On the way into the account, the contribution tax is 15%.
- Upon withdrawal, tax paid is according to your annual income, less 30%.
Thus, the ATO assumes savers made a return on their investment that’s equivalent to the bank bill rate. This rate is the figure banks pay professional investors, plus 3%.
Of course, this tax rate is fine if this is the return made. If not, then the tax shortfall comes from the saver’s superannuation fund. Plus, the ISA note that after tax the $30,000 deposited into the super fund may only be worth $25,000 when withdrawn.
Super fund partners have crunched the numbers to find out just how much the scheme helps first home buyers. According to data, the average first home buyer save an extra $2,500 per year using the scheme. Couples may be slightly better off with a benefit of around $10,000. So, how did they calculate this?
- Savings under the FHSSS – Julia earns $79,721 per year. Under the FHSSS Julia can salary sacrifice $15,000 per year over two years into her super to save for a home. After tax, Julia’s contribution equates to $12,750 per year. This amount then earns 4.78% per annum in her super account. Assuming the $15,000 went in as a lump sum – which it won’t – the amount at withdrawal is $13,359.45.
Of course, the ATO consider this amount as income, so it’s added to Julia’s earnings. Therefore, Julia’s taxed at a higher rate, but receives a 30% tax rebate. Consequently, she pays an added $946.17 in tax on her withdrawal. Thus, her return is $12,413.28. Over two years, she’d withdraw $24,826.56.
In comparison, let’s look at a term deposit.
- Savings under an investment account – A two-year term deposit will attract around 2.5% in interest. Therefore, if Julia puts her $30,000, after tax, into a term account, she’ll deposit $19650. Julia’s tax rate is based on her annual income of $79,721. Therefore, after two years, she’ll earn $982.50 taking her deposit to $20,632.50.
Thus, under the FHSSS Julia ends up being $4,194.06 better off. But, just remember this calculation centres on the 12-month figure deposited as a lump sum. However, Julia will be contributing as she gets paid. Consequently, her return may be even less.
Tags: Home Loans