Easier for Millennials to save a home deposit without Super Guarantee

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The Centre for Independent Studies argues that younger people would find it easier to save for a home deposit with lower levels of compulsory superannuation contributions.

The Centre for Independent Studies (CIS) policy paper, Millennials and Super: the case for voluntary superannuation, doesn’t make any firm recommendations, but does strongly suggest that compulsory superannuation – the, currently 9.5%, Superannuation Guarantee – should be reduced to allow younger workers to save a house deposit. The paper also goes further, arguing for the removal of compulsory superannuation.

This paper comes at a time when the Government may soon start a review of the Super Guarantee. Treasurer Josh Frydenberg has recently said he wished to implement a recommendation of the Productivity Commission, which called for an independent inquiry into retirement incomes ahead of an increase to the Super Guarantee rate. Some in the superannuation industry are concerned that such a review may be used to further slow increases to the Super Guarantee rate. Though, earlier in 2019, Frydenberg said the Government had “no plans” to slow or stop the scheduled increases to the SG rate.

The CIS paper argues that, in terms of affordability, increases in house prices has been partially offset by lower interest rates. However it has become harder to save for a deposit, “it is this more than any other factor that has made it so hard for millennials to buy a home”.

“The average deposit as a multiple of average earnings almost doubled between 2000 and 2015. And it is here that the interaction with compulsory super matters so much because as millennials are trying to save hundreds of thousands of dollars in order to get on the bottom rung of the property ladder their income is docked nearly 10% to save for their retirement.”

CIS suggests that owning a home should rank above superannuation balances in priorities, as people can be comfortable in retirement without super, but “it is far harder to be comfortable if you do not own your home”.

“Superannuation, particularly future increases in the guarantee rate, makes it harder to save for a deposit. Given the importance of owning a home for comfort in retirement this is a concerning trend,” says the CIS policy paper.

“A voluntary system, or at a minimum one that has a far higher threshold for compulsory participation, would give millennials and low income workers greater flexibility in their savings choices. This would be a welcome improvement to the current compulsory super system.”

“Arguably the most important question that needs to be answered, assuming superannuation continues to operate largely as it has for the past two decades, is whether the vast majority of the workforce should be compelled to remain in the superannuation system at all.”

The CIS has long been critical of compulsory superannuation contributions. Though it is largely only the compulsory elements of superannuation that CIS opposes, not the super system entirely.

“There should be a tax advantaged, long term savings vehicle available to assist people save for retirement,” says CIS.

The Grattan Institute has also recently expressed concerns about the impact of increasing the SG rate will have on workers.

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