KiwiSaver or Kiwisuper? What Australia’s Debates Teach Us About Retirement & Housing
Published on October 30, 2023 by Duck Bell
Australia's fierce debate over allowing superannuation funds to be used for home purchases offers valuable lessons for New Zealand's KiwiSaver scheme, highlighting the delicate balance between housing aspirations and retirement security.
The Proposal Across the Ditch
The Australian government has proposed allowing first-time homebuyers to access up to $50,000 or 40% of their superannuation to purchase a home. Proponents argue it helps young people enter the property market, while opponents fear it will inflate house prices and deplete retirement savings.
Potential Risks for Retirement Schemes
- Increased Housing Prices: Evidence from New Zealand's own first-home withdrawal scheme suggests that injecting more money into the demand side of the housing market can lead to inflated prices, making homeownership even less affordable for those who follow.
- Reduced Retirement Savings: Accessing superannuation funds early can significantly diminish the final retirement nest egg. The loss of compound interest over decades is substantial, potentially leaving individuals with inadequate funds in their later years.
"The primary purpose of a retirement fund is to ensure long-term financial security, not to solve short-term housing affordability issues."
Lessons for New Zealand
- Maintain Separate Objectives: KiwiSaver should primarily serve as a retirement savings vehicle. While the first-home withdrawal is a popular feature, expanding it further could compromise its core purpose of ensuring long-term financial well-being.
- Consider Alternative Solutions: Instead of raiding retirement funds, focus should be on addressing the root causes of housing unaffordability, such as supply constraints. Government grants or low-interest loans are alternative ways to assist with home purchases without jeopardizing retirement savings.
Conclusion
While the idea of using KiwiSaver for home purchases may seem appealing, it's crucial to consider the long-term implications. Australia's debate serves as a timely reminder that protecting the integrity of retirement savings schemes is paramount for the future financial health of the nation.