A focus on long-term performance
Money magazine’s Best Retirement Innovator 20232
14 February 2023
With housing prices rising over the past decade, the Great Aussie Dream of owning a home can seem just that – a dream. But did you know you can use your super account to help save for your first home deposit?
In this episode, host Anne Fuchs and super educator Megan Ashenden break down how the First Home Super Saver Scheme works. They also cover the pros and cons of taking money from your super to buy your first home.
Hello and welcome to Super Insider, Australian Retirement Trust's podcast series on the economy, investments and all things impacting your superannuation.
My name is Anne Fuchs, I'm Head of Advice at Australian Retirement Trust. The team and I help our members, day in, day out, 2 million of them plus, hopefully all of them are making really good decisions about their retirement savings, because it's so very important.
Today I'm sitting here on Turrbal and Yuggera country, so I'd like to pay respects to Elders past, present, and emerging.
With me is Megan Ashenden, she's one of our Member Education Officers. It's wonderful to have you here.
Thank you, I'm so excited to be here.
Welcome to Super Insider podcast we have a lot of fun here. I hope you've got your sort of belts and braces on as we strap in and have a good…
Absolutely, I've watched all the podcasts and I am so excited to be part of it.
Today we’re talking about using superannuation to buy your first home, but before we do that, we have to make sure we meet our, tick a box with, not tick a box Compliance people we would never tick a box. No, we wouldn't tick a box. We love doing a general advice warning.
Absolutely, wonderful. So before we start, I do need to just let everyone know that what we're going to be talking about today is general information only. Any advice doesn't take into account your personal situation. You should consider your circumstances and think about getting personal advice before acting on anything we discuss. Now, of course, you can always get copies of our Product Disclosure Statements on our website or by calling us on 13 11 84 if you have a Super Savings account, or 1300 360 750 if you have a QSuper account.
Bravo, that's fantastic. Now we are talking superannuation and buying a house. I know there's been lots of research that’s come out over the last year or so about people that, when they retire, if they own a home, they’re in a much better position than if you aren't a homeowner, so I guess this is an important thing to weigh up.
Yeah, absolutely. It's so topical.
So topical, and look, you and I, before we started recording, we were talking about kids starting school. My youngest is starting high school and we bought our house, we were probably 30, I think, our first home, so I'm well and truly past thinking about buying a first home. I'm in a different phase of life. But, if I can ask a personal question, did you use superannuation to buy your first home?
I didn’t because the scheme didn't exist. I think it was introduced six months after we bought our first home and so I couldn't take advantage of it which was a little disappointing, but I now get to help others understand it and be able to use that information so that they can hopefully buy their first home.
So when they announced it, you were probably in your head going "Oh no, I could have done with that."
Yes, it would have been very helpful, but they were the rules back then, so we made it work and, as I said, now I get to help other people take advantage of it.
Okay, so today we're talking about weighing up the pros and cons because that's the reality, everyone's situation is different as per the general advice warning.
So we're going to uncover what you should be thinking about, what are the advantages, disadvantages, and what you need to do next, if you think it might be something you should do. But I guess starting with, if you look at superannuation, it is a long-term investment but so is your first home so when you heard that announcement and you thought, “What is cool about using super to buy your first home?”
I think it's important to understand that it's not necessarily detracting from the purposes of super, which is for retirement because employer contributions can't be accessed.
But overall one of the great benefits are the tax concessions. We can pay less tax in super and so we can use this scheme to pay less tax, allow us to contribute personally into super, and if we're paying less tax we have more money, we can save faster, we can get that money for the house deposit sooner so that we can get onto the property ladder.
I'm sure you had a few people's ears prick up with less tax and property. Maybe for our younger listeners, where superannuation is still maybe a new thing, do you want to explain that concept of you can't use your employer, you use personal - what does that mean?
Whatever your employer has to pay, and right now as it currently stands that's usually a minimum of 10.5% of your salary, so employer contributions can't be withdrawn for the purposes of super. So you're still going to have that money being invested and growing and that’s going to be there for you in retirement.
What you are able to access for the First Home Super Saver Scheme, which is an absolute mouthful, but for the First Home scheme, any personal contributions that you, yourself make into super, subject to some limits and all of those rules, but the contributions you make can then be withdrawn if you meet the eligibility criteria and it can be put towards that deposit to be able to buy the first home.
So the benefits, you mentioned, the tax component and there's probably compounding interest and investments versus term deposits, so let's break this up.
Yes, so step one is obviously adding money in, in the first place. Where it can be helpful is to use the power of a salary sacrifice scheme or tax-deductible contributions, because generally in super those kinds of personal contributions are only being taxed at a rate of 15% and for most of us our marginal tax rate is a lot higher.
So if we're paying more in tax we don't have as much every payday, after tax, to save. But if we're able to pay less tax, then it's going to theoretically give us more take-home pay, which will allow us to save more faster to hit our savings goal. So we're saving on tax and then that money is contributed into the super environment. That gets invested and compounding earnings and all of that and in terms of growing over a long-time frame.
Typically there's some deemed earnings that are applied to these monies that are being contributed, and that can be greater than what you would get back as a term deposit or as interest rates, for example. So we've got two advantages here, we're able to pay less tax save more faster, potentially have it grow more, and then the third benefit is that, and this is something that would have been helpful for me, we're not able to withdraw those funds until we're ready to go and buy the house.
You can't go on a holiday because you've changed your mind.
Correct. You can't just suddenly make a withdrawal, do an online transfer.
Oops I bought something.
Correct, yes. So that can be a big benefit for some, because it's out of sight, out of mind. It’s only when you're ready because there’s some admin and some extra steps involved. But locking it away, it's the same concept of superannuation, we can't typically access it until we retire. That might not seem that great at the time, but out of sight, out of mind, have it grow, have it contribute, it's just there in the background working hard for us we've got more in retirement. Same concept for the First Home Super Saver Scheme, just on a shorter time frame.
We've had Brian Parker on Super Insider talking about the 2023 outlook and talking about superannuation being a long-term investment, what would you say if you have one of our younger members, if someone's young they're going to be, they're 5 years out from buying a house, probably something different to someone who's maybe a year or 2 away. What would be your top tips around the timeframe around using this?
Yes, absolutely. This is probably where we need to talk about the rules, because there's always rules with super. There are maximum amounts that you can personally contribute into super for the purpose of the First Home scheme. Remember employer contributions you can't access, it's the personal contributions that are coming from your money effectively, and so that you're able to contribute a maximum of $15,000 per financial year.
Which is a lot of money.
It is a lot, some of us may be in a position where we're able to save more than that. Remember First Home Super Savers Scheme's possibly not going to be just in isolation alone, it’d be a bit of a combination of first home and other savings, so if you've got the capacity to save more, we can do that outside of super.
So $15,000 going into super per year and we do have to remember that the ordinary contribution limits do apply for both before and after-tax contributions. So $15,000 in every year, and then the maximum amount that can actually be withdrawn in total is $50,000.
It does mean it's not a quick process. Obviously, if you're wanting to buy that house sooner, you can just withdraw whatever funds have been contributed but to get the maximum benefit 15, 15, 15, and then a little bit more theoretically, it would be over about three and a half years.
I think a lot of members probably with cost of living and everyone's tightening their belt, saving $15,000 is a…
It's difficult, it's hard, it's challenging. You’re not necessarily going to be able to buy your own home overnight, but slow and steady wins the race and then, especially to help with these cost-of-living challenges, if we can pay less tax, we're able to save more money faster.
What if members are worried about if they're putting the money in, and there's still this volatility in investment performance and there's a further downcycle, and they think, “Oh, well, my money's going to go backwards where at least if I put it in a cash account, that's not going to happen.”?
That's correct and like all things in life there are pros and cons and considerations. In terms of the earnings that are applied for the First Home Super Saver Scheme, there's a deemed earning rate that's applied.
Okay, and what is that deemed earning rate?
Oh you're really testing my memory bank right now. It does vary so the best place to find out what it is currently would be on the ATO website, there will be information there.
What are the disadvantages if there's any?
The disadvantages can be, if, for whatever reason you don't end up going down the property route in terms of purchasing the property, like all contributions to super you typically won't be able to access them until retirement. So if you do save this money and then obviously not access it…
Something changes in your life and you're not buying a house.
Correct, yes, the good news it will mean more for you in retirement, because you'll have those compounding earnings.
Now, there are also some tax implications. It's not always right for everyone, because if you're on a lower tax rate, the tax savings, or the tax rate super versus outside of super may not stack up for you. That's why getting advice, doing your research, is important.
It also must be used for the purchase of a residential property. In other words, you've got to be owning and living in it. You can't use it for an investment property, also things like tiny homes, mobile homes, caravans, houseboats, you can't do it. It's got to be a bricks and mortar home.
There’s always the risk as well from a cash flow perspective. As I said, we've already talked about the rules changing, but admin, there is a process involved. You've got to apply via the ATO and like all things bureaucracy there is a bit of a timeframe. So make sure that you allow that in terms of you're not going to get the money the very next day. Be aware of the timeframes, and if you do withdraw the money and you don't go through with the property purchase you've got 12 months once the money is in your bank account to go and sign the contract and purchase the home. You can get an extension if you need. But if you don't use it towards buying your first home, then there will be additional tax that you have to pay. So I suppose you want to be pretty sure that you're ready and rearing to go.
Is there any impact for our low-income members where the government helps encourage people to put more money into super, is that something else in terms of a benefit?
Yes, so the co-contribution that you might get, what the government has paid in for you, won't count as an eligible contribution for withdrawal, but your personal contribution that's enabled you to get the co-contribution in the first place will count.
Yes, because I was thinking some of our maybe financially savvy members who are in that situation where they can access the co-contribution might be thinking, "Oh, cool, double."
No, unfortunately not, but overall this scheme can be quite positive. So, like everything read the rules, make sure it works for you and get some advice and really sort of get that finetuned to make sure that you're dotting the I's, crossing the T’s, and taking advantage of it as it best suits your circumstances.
Where would you go if you're a member and you're thinking about this, would you go to get some more information?
Firstly jump online, just onto the Australian Retirement Trust website and then we're going to link you to the ATO. We'll have some information on our website, but at the end of the day it's an ATO administered scheme, so they are the gospel truth. There's information there and you'll be able to read over it and go through the process and understand it better. Then if you need advice, that's something that we can provide so utilise that.
Yes, I guess could they talk to their accountant or if they have their adviser as well?
Yes, absolutely if they've got their own adviser, their own accountant that they're already comfortable with, they should be all over this scheme and they'll be able to help them understand how it can work.
It’s hard for young people to get into the property market. Really, really hard, and as I said, there was research undertaken about the power of home ownership in terms of having a dignified, financially secure retirement. This is why we've got this podcast series today to help our members really have that financially secure retirement.
Yes, absolutely because the home is going to be one of our largest assets and then we've got our super as well, so that can really work in combination with one another. So being able to take advantage of these newer changes can be beneficial.
That's exciting. Thank you so much for coming onto Super Insider. Have you had fun?
I've had so much fun.
Well, I hope you'll come back.
I will, absolutely.
Okay we hope, our listeners, that this has been useful. Megan has suggested looking at our website at australianretirementtrust.com.au, going to the ATO website, picking up the phone or speaking to your adviser or accountant.
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Thank you for listening, and we'll see you again soon.
This podcast is brought to you by Australian Retirement Trust Pty Ltd (ABN 88 010 720 840, AFSL No. 228975) the trustee for Australian Retirement Trust (ABN 60 905 115 063) (the Fund).