No, women shouldn’t be able to dip into their superannuation to buy a house. Nicole Pedersen-McKinnon, the founder of TheMoneyMentorWay.com, explains why.
If you needed proof that Tony Abbott shouldn’t be Minister for Women (or that Joe Hockey has embarked on a popularity drive and stuff the economy), this is it.
Related content: A report card for Tony Abbott’s year as Minister for Women.
The idea to allow people to dip into their super to buy their first homes, put up by Hockey and backed up by Abbott, is terrible for everyone… and especially first homebuyers.
But. It. Would. Wreck. Females’. Lives.
Super is inherently sexist. What goes in is based on earnings, and we all know women earn an average 18%+ less than men – cheers Patricia Arquette – and for a shorter time. Whether to care for growing kids or, increasingly, ageing parents, it is still typically the woman who stops paid work.
Then we go and live an average 4.4 years longer than men – so this smaller stash has to stretch further.
I‘ve nicknamed the gender funding gap the new GFC or Girls’ Financial Crisis – because it’s that serious. But this proposal would make it almost impossible to traverse.
Let’s say a 30-year-old woman earning $70,000 a year withdrew $25,000 to top up her deposit on a nice little semi. At that point, it would represent all her savings (the average female’s balance at this age is about $23,000), says the Association of Superannuation Funds of Australia.
If she worked for two more years until 32, then took three years “off” to have kids, her super balance at age 67 would be $380,000. That’s an enormous $112,000 less – almost 25 per cent – than the $492,000 she would have retired with.
Her ultimate result is $50,000 short of what it takes to fund a comfy lifestyle for as long as we are likely to need it (and she’s in real trouble if investment returns tank).
Related: This is why you need to start thinking about your superannuation now.
I don’t know about you, but I’d like to be able to afford to put on Sunday roasts for any grandkids. And heating.
As Pauline Vamos, CEO of ASFA, puts it: “Many women face challenges when it comes to accumulating adequate retirement savings…. [It’s] hard for them to build up the savings required to live with comfort and dignity in retirement.”
Way to f*ck up your future by taking what little you have out for something that, sure, you’ll be able to live in but won’t be able to live on.
(Incidentally, super has returned an average 7 per cent over the past 10 years, while property has only managed 6 per cent. You can also get ‘free’ contributions if you put your money into super because so-called salary sacrifices – they need to work on the branding – are made before tax.)
retireIndustry Super Australia says the average person taking (a higher) $40,000 out of their fund would lose $100,000 in compound interest and, vitally, “it would inflate house prices”.
Buying a house is hard – affordability is again awful and competition for each property fierce. But geeze, it’s nothing on the challenge of trying to pay for retirement with no money.
Related: How to get the most out of your superannuation, by experts
What I don’t understand is how the government apparently hell-bent on getting Australia solvent and cutting its citizens’ reliance on welfare can be so short-termist. Oh hang on, three-year political terms.
The Age Pension is already projected to increase by 70 per cent over the next decade based on current policies and the government clearly doesn’t want to keep paying it. With the number of people aged 65 to 84 expect
ed to double between 2010 and 2050 (and 85-pluses to quadruple), this is a massive issue for our economy.
Super is already inadequate for women to self-fund. And this government has so far halted two moves that would have helped us: the increase in payments to 12% and the proposal that was spiked along with the beefed-up paid parental leave scheme, to require employers to pay super on leave payments.
(How about making it up to us by removing the requirement to earn $450 a month from the one job before it attracts super, Tony? This disproportionately penalises women.)
The thing that works about our super system is it’s compulsory and it’s untouchable. That’s a bit annoying but like it or not, broke or not, wanting a house or not, 9.5% a year is paid in on our behalves.
Heaven help us if it weren’t.
Nicole Pedersen-McKinnon is founder of TheMoneyMentorWay.com and developer of The 12-Step Prosperity Plan. You can regularly find Nicole on TV and radio giving easy-to-understand money advice. Fixing your finances is not nearly as hard as many experts make it sound. Follow Nicole on Twitter @NicolePedMcK
Top Comments
No one should be able to dip into their super to use as a house deposit, female or male. Such a short sighted idea. And it wouldn't help because it would just drive prices up further. Everyone is thinking of only their own personal situation. "If I can access $30k from my super, I can finally afford that deposit". Forgetting that if thousands of first home buyers do the same thing, then they can all afford $30k more. There's still only a limited supply of houses in the price bracket that first home buyers go for. What happens when more people have more money but there's no extra supply in the housing stock? House prices will rise because people are bidding against each other. So no one ends up better off. Well, actually big banks do - they get even more interest from larger mortgages. But everyone else just ends up with less super and housing prices that rise even more again!
I'd like to see further discussion on why we aren't ramping up the compulsory super contribution percentage? If we are living longer and need more money accumulated when we retire then make the 9.5% higher.
Unfortunately any change that releases large amounts of money to be available for home purchases will only drive up property prices even further. An accountant once asked me why was it so important to own a home? Many people rent their whole lives and still manage to accumulate a nest egg for retirement it just requires the discipline to put the money away and not touch it.
I'd really like to see financial studies taught in school in a very common sense way to illustrate the different options people have with their money. So many people just get a job, pay their bills and allow super to take care of itself rather than take an active interest in their money.
I have a baby girl and I will be advising her to make sure she can take care of herself financially on her own. I've seen too many friends mum's give up work when they had kids, end up divorced when the kids are grown and have to work in very low paid and physically demanding jobs just to survive until they reach pension age. The settlement usually gives then enough for a modest house but nothing to live on. Meanwhile the ex is continuing on with his normal earning potential and no longer supporting a spouse with that money as the kids are gone.
I'm all for pressuring business to end the gender pay gap, but the reality is that we have to work with the system we have at the moment and be smart about looking after ourselves.