Letting people tap their superannuation early to get into the property market may be a dumb idea, but experts said Australia must find a way to grapple with the looming social crisis in which an increasing number of people will retire without owning their home outright.
A new report, titled No Place Like Home: The impact of declining home ownership on retirement, commissioned by the Australian Institute of Superannuation Trustees (AIST) and written by independent economist Saul Eslake, shows alarming trends in the number of Australians set to retire while still paying off their mortgage or paying commercial rates of rent.
The report, which was launched at the Conference of Major Superannuation Funds, taking place on the Gold Coast on March 22-24, found that deteriorating housing affordability is putting intense pressure on the ‘pillars’ of Australia’s retirement income system.
Three of the pillars are compulsory super for most workers, the social safety net of the age pension, and private savings. However, home ownership is often considered vital for the system – a fourth pillar.
Eslake said key concerns were the ongoing decline in the proportion of Australians who owned their homes outright and the increase in the proportion of renters.
Historically, about 80 per cent of retirees have owned their own home outright, while many of those who were renting had access to subsidised housing. But this will not be the case in the coming decades.
People who have to pay rent in retirement need a higher income, meaning they will probably spend their super faster and need to rely on the age pension.
“If current trends continue, a lot more people will retire with either mortgage debt or having to rely on privately rented housing,” Eslake said. “Increasing numbers of retirees will use some, if not all, of their superannuation to discharge their outstanding mortgage, which, in turn, will [cause more people to] rely on the age pension.”
The report warns that failing to address the ongoing deterioration in housing affordability will condemn future generations to poorer living standards and higher taxes as age pension costs increase.
Assumptions too optimistic
AIST chief executive Eva Scheerlinck, who was permanently appointed to the role on Thursday morning, said the Eslake report highlighted the need for governments to consider the wider implications of the housing affordability crisis and raised questions about whether official forecasts of the number of Australians reliant on the age pension in retirement in the decades to come were too optimistic.
“The assumption that housing is a ‘fourth pillar’ in our retirement income system has become increasingly dubious,” Scheerlinck said. “Many of the standard ways we measure the adequacy of superannuation assume retirees own their homes outright, when this may no longer be the case for a significant number of Australians.”
Scheerlinck did agree, however, with Eslake’s conclusion that using super to help first homebuyers pay for a home was not the answer.
“This report clearly shows that tapping into super to buy a home would simply lead to higher housing prices, rather than home ownership, and favour some groups over others,” she said.
Assumptions about how much money people will need in retirement need to be urgently revised, Eslake said. He pointed to recent research by actuarial consulting firm Rice Warner that found people who don’t own their own home need, on average, $500,000 more in super to be able to afford a comfortable standard of living in retirement.
“And, of course that, is a completely unattainable aspiration for most people who have been unable to afford a home,” Eslake said.