FPA warns of hidden traps in Coalition’s superannuation proposal

In a frank scrutiny of the Coalition’s proposed Super Home Buyer Scheme, largely a response to Labor’s proposed ‘Help to Buy’ scheme to own a 40 per cent stake in a mortgage, the Financial Planning Association of Australia (FPA) responded to the Liberal Party’s plan with reservations.

FPA chief executive officer Sarah Abood said the Coalition’s proposal is interesting, and in the short time since its release “we have had many conversations about it”.

“Under this 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,” Ms Abood said.

She noted that 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.

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.

Regarding the potential sale of the home, Ms Abood said 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 as well as the original principal is returned to the super fund.

She suggested this could be via a caveat on the home taken out by the super fund, or tracked by the Australian Taxation Office (ATO).

But she warned there would be reporting obligations and additional costs to consider in either case.

“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.”

Also warning of other potential unforeseen problems that could emerge from using the Coalition’s scheme, Ms Abood said it’s “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,” she said.

Expressing openness to the Coalition’s plan from its virtue in addressing the critical issue of housing affordability, Ms Abood described the proposal as “interesting”.

“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,” Ms Abood said.

“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.”