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Superannuation – save for retirement or withdraw for house

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Superannuation savings aren't enough to come up with a deposit for a house in Town
Superannuation savings aren’t enough to come up with a deposit for a house in Town

One of the hottest topics currently being debated in the Australian superannuation industry is the proposal by the Treasurer of the Australian Government to allow first homebuyers to access their superannuation funds in order to assist them with a deposit to purchase a home.  The proposal stems from the difficulty potential homeowners are facing to raise a deposit for a home loan amid soaring house prices.

As expected, those who are struggling to come up with the required deposit for a home loan have welcomed the idea while those against it are concerned that accessing your super will defeat the very purpose of superannuation.  In other words, superannuation funds should only be accessed on retirement and not before.

In contrast, Papua New Guinea’s superannuation laws allow members to access up to a 100% of their savings after meeting the prescribed requirements.  Despite this “access”, the majority of members withdrawing 100% of their own contributions will still find it difficult to  meet the required 20% equity contribution for a home loan from commercial banks.

One of the key arguments raised by critics of the proposal is that enabling more people to have access to their super can only contribute to an increase in property prices.  In other words, the more people who are able to secure home loans with the assistance of their superannuation the more people will demand properties.  And as we all know, the more the demand the more property prices will increase.

Taking this argument into account and the fact that Papua New Guineans have access to their superannuation before retirement, does this access contribute to the increase in property price rises in say Port Moresby?

This is unlikely to be the case because even if Papua New Guineans have the ability to access their super, the prices in Port Moresby remain exorbitantly high and beyond reach from the average Papua New Guinean who is able to access his or her super.  The disparity between the increase in house prices and wage rates is at different extremes, having access to super is unlikely to play any part in the increase in property prices in Port Moresby.

The most obvious problem in Port Moresby’s property market is the lack of supply of decent affordable houses for Papua New Guineans.  The lack of supply of the property types and styles for Papua New Guinea coupled with shortage of vacant land in the main suburbs of Port Moresby is clearly contributing to the ever increasing property prices.

If, as we suggest, that having access to super isn’t helping Papua New Guineans purchase homes or at the very least assisting with the required deposit, should it be scrapped?  Is this more of a case of accessing ones super for something other than buying a home at the expense of having enough funds on retirement?

In Australia, super is inaccessible.   In Papua New Guinea, the rules enable access not just to assist purchase or construct a home but to also purchase solar panels, fridge, water pumps, substantial renovations and so on.

Obviously, if the access to super to buy a home is scrapped, the decision might receive an outcry from members not because it will prevent them from buying a home but more generally the conception that it prevents them from accessing their money.  And one reason why this will be the likely result is that Papua New Guineans do not have a personal savings culture. Whatever they have saved, can vanish if they ever have direct control over it.

PNG’s current superannuation rules might favor members who already have customary land to build their house.  This is because in most cases, the price to pay to build your house on customary land is much less than if one has to pay for the more expensive property with a State Lease title to it.   If a member were to access his or her superannuation as a deposit for a home loan to buy a property, superannuation funds would be depleted on retirement.  And if one still had a mortgage at the time of retirement, it would not necessarily be a retirement to look forward to.

So, would Papua New Guineans prefer to access their super before retirement to purchase a home or would they leave it in the fund in the hope of accumulating their contributions through compound interest and have access to it on retirement?