Advice critical to those accessing super for homes says FPA

There is concern that the devil is in the detail of the Federal Government’s election promise to allow first home buyers to access their superannuation balances, according to the Financial Planning Association (FPA).

Responding to the policy announcement, FPA chief executive, Sarah Abood described it as interesting but added: “There is some concern that the devil may be in the detail” and raised the prospect of “robbing Peter to pay Paul”.

Abood noted that, under the proposal, a share of the member’s first principal place of residence could be considered to be an asset of their superannuation fund, like any other investment such as shares or bonds “although of course the personal usage rule would need to be waived for this kind of asset”.

“From the super fund’s perspective, the asset would be illiquid and no income is generated while the fund holds a share of the home. On the other hand, the member might be saving some rent or mortgage interest, and we presume that any capital gain would be tax free to the fund, another potential positive,” she said. “The super fund would need to track the value of the home while it’s held, so it can report to members the real value of their super.”

““On the sale of the home there would need to be a mechanism that calculates the share of capital gain due to the fund (including the impact of any improvements to the home along the way), and ensures this plus the original principal is returned to the super fund.

“Perhaps this could be via a caveat on the home taken out by the super fund, or tracked by the ATO? In either case there would be reporting obligations and additional costs to consider.”

“The other concern we have is regulatory. Direct property is not a regulated financial product and anyone can advise on this type of asset. If someone is getting their advice from a property developer or credit provider, the person’s full financial situation might not be taken into account.”

“It is vital that people seek the advice of a professional financial planner before making any decisions that will affect their financial situation, and their superannuation, in this way.”

“There is a risk that someone might end up ‘stranded’ in a property they can’t afford to sell: because after returning the original investment plus gain to the fund, they might not be able to afford to buy another home without that support.”

“The Coalition’s proposal is interesting and certainly addresses a critical issue for many Australians. We are keen to understand more about how it might be implemented – because it’s important that this stacks up as a potentially good investment for someone’s super fund in its own right.

“Otherwise we might be just “robbing Peter to pay Paul”, by pulling out money now that is meant to be invested for peoples’ retirement incomes.”