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Barriers to home ownership the real hurdle to a comfortable retirement

John Collett

Our super system is not in need of restructuring as some commentators suggest.

But millennials worried about whether they will ever save enough to afford a comfortable retirement should be giving priority getting into the housing market. Property owners retire wealthier than renters.

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The seasonal unpaid super story

Some industry super funds believe 30 per cent of workers are missing at least some of their superannuation. Michael Pascoe comments.

It's not only that capital city property prices have risen strongly leaving renters in the shade, the family home is exempt from assets test applied for the age pension.

No capital gains tax payable on the sale of the family home and, given the political sensitivities of the issue, that's not likely to change.

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There's also peace of mind that comes with home ownership.

When the pay cheques no longer come in do you really want to be paying rent, or live in a house that that is paid off where you can downsize and free-up tax-free money, albeit within limits, to provide income in retirement?

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There has been much attention given to the changes to the rules on access to the age pension and limits to how much can be saved in retirement tax-free. But the restrictions target the better off.

Longer life

It's true that we are all living for longer with the very real likelihood that many more people born in the last 30 years will live to 100.

And the age pension age is rising to age 67 for everyone by July 1, 2023, from 65 for most people now, with the Coalition wanting it increased to age 70.

Returns on investments across the developed world are lower than they have been in the past, prompting warnings, such as this from America, that millennials will need to work much harder to save for retirement.

But Australia's super system – with its three pillars of age pension, compulsory contributions and voluntary contributions -  is unique.

For a start, there is the super guarantee - the compulsory super that was introduced in 1992 at 3 per cent of wages. Currently the guarantee is 9.5 per cent but, eventually, it will almost certainly rise to 12 per cent.

A higher level of compulsory super over a longer period will more than offset lower returns earned on the money.  

Desire to work

More people will be working for longer than earlier generations not only for financial reasons but because they want to keep working.

Each additional year in the workforce is a year less in retirement that has to be funded and an extra year's worth of compulsory super contributions.

The tax incentives for making voluntary contribution to super remain attractive.

By sacrificing salary into super the marginal rate of income tax is swapped for the lower super contributions tax which, for ordinary workers, is 15 per cent. 

And even after the Turnbull government's changes to limit tax-free access to super savings, a retiree couple can still save up to $3.2 million in super tax-free.

Our super system is fit for purpose.

The challenge for policy makers is to help millennials achieve the levels of home ownership that underpins the lifestyle of many current retirees. 

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