Planner suggests superannuation law overhaul

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Certified financial planner Paul Levy has made a suggestion to the FPA and the AFA about an amendment to the superannuation law, which he says could have benefits to clients as well as the economy.

His idea is to allow people with superannuation to move their super into new bank accounts called Superannuation Offset Accounts (SOA). These accounts will still fall under all the usual SIS Act regulations and restrictions but the amount injected can be offset against the member’s mortgage.

This is vital at a time when many Australians are struggling financially as a result of the GFC, the carbon tax, mining tax, increased unemployment and increases in electricity, petrol and gas, said Levy.

Results he hoped would come out of the change included improved cash flow due to reduced interest payments and more money each week to spend on goods and services, taking the pressure off the economy.

The idea also benefits banks, said Levy, as they will have access to more money at a cheaper price that they can then on-lend to new loans.

“Some of the loans offset would be investment use loans which would result in less tax deductions and therefor higher taxes paid to the ATO,” he said.

FPA general manager of policy and standards Dante De Gori said Levy’s proposal would support consumer confidence and a sense of immediate benefit from their superannuation.

“For this reason the FPA will consider your proposal, without respective policy and technical committees, as we continue our discussions with the Government…” said De Gori.

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  • Pat on 11/01/2013 9:51:03 AM

    On the surface, this sounds like a logical idea. However, one needs to consider the impact this will have on capital available for the equity markets and investment; that this would only be available to bank provided super funds and would disadvantage other funds like SMSFs.

  • Leanne on 11/01/2013 10:05:48 AM

    The sole purpose is to ensure that superannuation is to fund for retirement or dependants if a member dies.
    Not to prop up a overpriced property market that if left to its own devices would eventually become affordable.

  • Colin Peterson CFP on 11/01/2013 10:10:26 AM

    Whilst the suggestion sounds good and may help a few people it could have unintended and disastrous consequences if we suffered a major downturn in property values such as has been experienced in the US. Also its hard to see how it would not be a breach of Sect 62 of SIS (Sole Purpose Test)

  • Dave on 11/01/2013 10:39:10 AM

    Nonsense.

  • Tom on 11/01/2013 10:54:41 AM

    What a stupid idea! I can't believe it was a financial planner who has suggested this idea. Superannuation is for retirement planning - the 'sole purpose' test - not to fund current housing market.
    If this was allowed, there would be insufficent money in superannuation and the Government will be paying higher age pensions.

  • Wayne Leggett on 11/01/2013 11:04:55 AM

    This would, effectively, allow people to use pre-tax dollars to reduce personal debt.
    With re-draw facilities on almost all home loans these days, what is to stop the use of super contributions to indirectly fund taking the kids to Disneyland?
    I hope neither the FPA nor the AFA promote the proposal to government. The idea would be ridiculed.

  • Andrew on 11/01/2013 11:52:33 AM

    If someone cannot afford the mortgage perhaps they should sell the house and buy something they can afford. If the the home Asset is causing a problem why stuff up the super asset as well. The super fund would start to earn 0% less fees and the home would still be too expensive. No answers to the hard questions in this one.

  • Stephen on 11/01/2013 12:25:03 PM

    While I think his idea is just plain stupid, at least he is throwing ideas around. Too many people are critical of how super performs but not too many are willing to put up their hand with suggestions. There has to be a better way of encouraging people to put money into super that is of value to them and is not ambushed by global economic issues. I give him a tick for at least having the fortitude to suggest it.

  • Matt on 11/01/2013 12:26:29 PM

    "The idea also benefits banks, said Levy, as they will have access to more money at a cheaper price that they can then on-lend to new loans."

    And then we'll see already out of reach house prices increase jump by 20%+ because everyone will be rocking up to auctions saying "I can borrow more now because the cost of my debt is reduced".

    Nice thought, but economically...what Dave and Tom said.

  • Matt on 11/01/2013 12:29:22 PM

    I dunno about the rest of you but I'm pretty keen to get a gold star from Stephen today for throwing some ideas around.

    How about this, if you put $5,000 into superannuation, you get 4 cents off per litre at the petrol station and a free soft serve at McDonalds once a month.

    Thoughts?

  • Neil Salkow on 11/01/2013 2:53:42 PM

    Matt, why not add a plasma Tv in there for the family while we're at it. And don't forget the steak knives

  • Matt Ritchie on 14/01/2013 12:19:21 PM

    From these comments, it is clear that most people don't understand the proposal. The money will not be accessible and nor will it be 'invested' in the Property Market. It is a Cash investment through Super that can simply be used to offset a mortgage.

  • susan ingred on 14/01/2013 12:47:22 PM

    ha the governement wont buy it cause banks who regulate the country will suffer and we cant have banks billion dollar world record profits decline....

  • Pat on 14/01/2013 2:46:48 PM

    @Matt Ritchie: how does this proposal sit with the sole purpose test? This proposal may see many people effectively use their SG contributions, that are then offset against their mortgage, to free up personal cashflow (via reduced mortgage repayments over time) that may well be used for non-retirement funding purposes.

    Further, how does the use of one spouse's super to derive a benefit for the joint borrower/non-member spouse relate to the sole purpose test.

    I think this is ill-thought out.

  • Katie Whiffen on 14/01/2013 5:59:42 PM

    Hi @Pat...not at all. Key is to understanding an offset account and mortgage schedule. A mortgage schedule requires you to repay specific monthly repayments, and does not take into consideration offset accounts. Just the principal outstanding, interest rate and term. An offset account does NOT change the amount of cash flow on a monthly basis, but by reducing interest cost, the repayments pay off more capital so that you repay the principal faster. For the average super member with an average mortgage, your looking at saving 8 years of your loan term. Money that would otherwise go to the mortgage can then be paid into super (after tax) or saved through other means. End result - more savings in retirement.

  • Matthew Ross on 14/01/2013 9:31:34 PM

    @Matt Ritchie: I assume you're aware that superannuation in accumulation phase pays up to 15% tax on earnings.

    So this "proposal" means that banks earn less income because the money in superannuation offsets the loan to reduce interest and the tax office misses out on tax on earnings.

    Superannuation is a concessionally taxed pool of money. It receives concessional tax treatment because the benefit is not derived today, it is derived in retirement.

    To suggest that people need to experience an immediate sense of benefit from their retirement illustrates that the people considering this as an option may not understand the very nature of superannuation and how it is structured.

  • Pat on 15/01/2013 10:21:20 AM

    @Katie, I am aware of how offset accounts work. As I stated, and you confirmed, the mortgage repayments will reduce over time by virtue of the reduced interest payments per repayment, thus shortening the life of the loan.

    What you didn't address is that the freed up cashflow from the earlier discharge of the mortgage will not necessarily find its way back into retirement savings (super or otherwsie) but may well be spent on lifestyle expenses. Thus, the sole purpose test would be breached.

    Given the lack of financial literacy prevelant in this country, it is wishful thinking that this freed up cashflow will go back into savings and investments.

    Secondly, and assuming that the cashflow did make its way back into super, what you would have done is deferred investment in growth assets within super for many years, potentially harming future retirement benefits.

  • Sri on 15/01/2013 11:45:30 AM

    I agree with Matt Richie
    This idea is to use the super money to offset your mortgage. The super money will be untouched and this will encourage people to invest more in Super as they see the benefits in repayments.
    It will definitely benefit Banks as people will roll over their super from Industry Funds as this will yield extra benefits in the long run.

  • Michael Langtry on 15/01/2013 12:54:01 PM

    Nice try Paul. Good in theory - but in practice it will put upwards pressures on housing costs and make more cash available for people to spend on consumption and property, instead of their long term financial security. One outcome would be an exacerbation of the situation where retirees end up even more asset rich and income poor than now, with homes that are expensive to own and run. Another poutcome would be increased consumer price and property price inflation. If made available, even for those people who applied financial discipline, it would concentrate people's wealth accumulation on the property market, leading to an inevitable 'bubble and bust'. No diversification either.

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