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 noted.
Looking at New Zealand, which allows early withdrawals from its KiwiSaver scheme for home deposits, the SMC observed KiwiSaver balanced option returns have lagged Australian balanced MySuper products by around 1.14 per cent per year over 10 years.
SMC chief executive Misha Schubert observed the New Zealand system can’t invest as much of their super in long-term, higher-return investment options “because more of their super pool needs to be on-call to cover withdrawals for house deposits”.
Speaking at an industry event on Tuesday, she said: “We calculate the average 30-year-old Kiwi will have about $130,000 less than the average Aussie by retirement due to those lower returns.
“If this policy was introduced in Australia, it would weaken super returns for everyone with super – almost straight away – and retirees would feel it first.”
KiwiSaver returns, too, were 0.79 per cent per year lower than Australian MySuper options over the last decade when all investment options were considered.
As Australia’s national savings pool grows to $3.9 trillion, the SMC noted temptation has increased for policymakers “to seek to use super to fix other unrelated policy problems”, such as the Coalition’s calls to allow access to super for a house deposit.
“In recent years, there have been calls for super funds to invest in ‘nation building’, including in aged care, the energy transition, and defence,” Schubert said.
“While super funds will invest in areas of national priority if the returns stack up, super funds are not the solution to every other unrelated policy problem. That’s not super’s role.”
The success of the super system, she maintained, is built on the policy foundations of preservation, compulsion, and universality.
With this, she called for bipartisanship support to ensure super savings remain earmarked towards retirement.
Impact on the economy
The SMC’s latest report also indicated a by-product 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 to 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, local infrastructure investments such as Australian road, rail, sea, air and renewable energy projects 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 SMC report stated.
“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 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.
