Thoughts on The First Home Super Saver Scheme

LLittle hedge on 10/05/2017 - 12:51
Last edited 10/05/2017 - 13:07

http://www.littlehedge.com/introducing-first-home-super-save…

Quite surprising to see the government unveil the FHSSS yesterday which is basically a rehashed FHSA program. We see this scheme failing in line with the previous FHSA initiative.

The financial benefits to first home buyers are too small and the method of obtaining the benefit is too complex (put savings into super and then take it out again later, get taxed on both entry and exit).

A shame we didn't get any real policy on housing affordability however the scheme could be worth a few thousand dollars to those who participate with the right circumstances.

Any thoughts? Will you make use of the scheme?

Financial

Comments

  • Olokun on 10/05/2017 - 13:00

    The financial benefits to first home buyers are too small and the method of obtaining the benefit is too complex (put savings into super and then take it out again later, get taxed on both entry and exit).

    Any thoughts?

    Add to that the maximum a FHB can contribute is $15,000 per year to a maximum of $30,0000. The benefit compared to the average total deposit required would be minuscule.

  • Gunther on 10/05/2017 - 13:02
    +4

    http://budget.gov.au/estimator/

    Example:
    $100k income, $15k pre-tax contributions To FHSSS.

    After 2 years of saving, an estimated $24,417 will be available for a deposit under the First Home Super Saver Scheme.
    This is $5,711 more than if the saving had occurred in a standard deposit account.

    Better than nothing - but hardly going to suddenly make affording a house achievable.

    • railspider on 10/05/2017 - 13:24
      +4

      Keep in mind their calculator uses an assumption of 2% return in the standard deposit account. A savvy OzBargainer would be getting at least 3%!

      • moonphase on 10/05/2017 - 15:06

        any suggestion to get 3%+ with flexibility?

        • railspider on 10/05/2017 - 15:10
          +1

          ING Savings Maximiser (3%) & ME Bank (3.05%) are the OzBargain staples.

          Very flexible, no fees, just require a little bit of effort each month (a regular deposit or paypass spend)

      • Baysew on 11/05/2017 - 14:04

        The scheme will have a deemed rate of 3% plus the 90 day bank bill (Currently 4.78%).

  • idontalwaysnotlie on 10/05/2017 - 13:17

    In case you were wondering, you cant use your current super to pay for a deposit, but can only use extra stuff you put in over the mandatory 9.5%. Good for people who earn over the 80k level, but the limit of 30k will be hard in most capital cities (where are these 150k houses?).

    • mvbc85 on 11/05/2017 - 09:30

      Is this retroactive? I mean, I've been putting 14% into super the last 3 years. Am I able to take that 4.5% out for a deposit?

  • k-rokfm on 10/05/2017 - 13:19

    From my interpretation you will not get taxed on the entry of funds into your super account but on the exit you will get taxed (at 15 or 30% im confused on this point EDIT: there will be 15% tax on input through contributions tax). Its a bit of a stupid measure to only cap it at 30k, that wont get you a deposit anywhere in australia. Its exactly the same as the previous labour initiative, except for that funds go into your super, and that was scrapped a few years ago.

    We need actual policy on housing affordability instead of these "lets pretend were doing something" policies, which everyone is seeing right through anyway. Negative gearing needs to be altered significantly, not just the no travel for inspecting your house.

    And for families that are trying to scrape together a deposit, having to put money away in an account they cant touch for a rainy day will mean a lot of people will just skip it all together - similar to the previous home owners account

  • Mika1234 on 10/05/2017 - 13:31
    +2

    Means nothing if the house price growth in your area is 15% per annum on prices approaching $1m, you will always be failing to keep up.

    • railspider on 10/05/2017 - 13:41

      This is a good point. At best this Saving scheme will give you a bonus $5,000 in 3 years time.

      The way property prices are growing, you'd earn a higher return by buying a cheaper house now and selling/upgrading in 3 years.

      • k-rokfm on 10/05/2017 - 13:44

        Hahaha thats the problem is that even the cheaper houses now are far too unaffordable!

        • [Deactivated] on 10/05/2017 - 13:53
          -4

          I understand their frustration but it might give them more inspiration to start a business or another way too achieve the funds.

        • railspider on 10/05/2017 - 13:55
          +5

          @RowdyAlpha: Geez I've tried getting richer parents but it just isn't working!

        • Mika1234 on 10/05/2017 - 14:02
          +1

          @RowdyAlpha:

          Why not give this same inspiration to current property investors?

        • k-rokfm on 10/05/2017 - 14:04
          +1

          @RowdyAlpha:

          Yes Joe Hockey is that you

    • echelon6 on 11/05/2017 - 10:01

      FHBs dont deserve 1m homes as their first.

  • [Deactivated] on 10/05/2017 - 13:43

    if u put the money in the bank you Still have to pay tax at the end of the year anyway, roughly 30%. Maybe 1st home owners want given a house at 50% off or they will probably complain about the location then.

  • Cheap Steve on 10/05/2017 - 13:53
    +4

    Just read the article and seems worse than the First Home Savers Account.

    This too will be be a flop and taken out the back paddock and shot in a few years' time.

  • nomunny on 10/05/2017 - 14:46

    Would the mandatory contributions of 9.5% be taken out before or after the salary sacrifice?

    • k-rokfm on 10/05/2017 - 15:06
      +2

      They would be calculated before with before tax salary, so there would be no impact on mandatory contributions

  • markathome on 10/05/2017 - 14:48
    +1

    My interpretation (could be wrong):

    The intention of the scheme is that a 23 year old put away a little extra pre-tax each week resulting in maybe $25k over five years ($4k in 2017/18 to $6k in 2021/22). To withdraw at 28 roughly $24.25k. This withdrawal is taxed at the marginal tax rate less 30%. This would be 7% at $100k/annum or 2.5% at $80k/annum returning $22.5k or $23.6k respectively. This may seem a rip-off but keep in mind you've put the $25k in pre-tax so this is not such a dud deal, especially as your taxable income was reduced by your contribution for each of the five years to-date.

    But here's how someone could work it:

    • Contribute $15,000 4th of July 2017 (they need a few days to recover from the OzBargain FY end-of-year sales)
    • Stay in their $120k/annum job for that year but only pay tax on $90.6k (as opposed to $105.6k) - resulting in a nice tax refund
    • Contribute $15,000 1st of July 2018
    • Stay in their now $124k/annum job for a bit but…
    • During the latter part of the European summer of 2018 take leave without pay and spend three months taking bargain flights to Asia, Europe and America
    • Return home to the an ailing property market to purchase a Victorian property in early 2019 with $29.5k from the scheme, their ample savings, no stamp duty and $737 tax debt that adds to that from their $81.9k income for the 18/19 financial year
    • Get their biggest tax refund yet because their employer has calculated their PAYG tax based on their $124k/annum salary
    • markathome on 10/05/2017 - 14:51
      +4

      Now I just need the $120k/annum job. :D

    • railspider on 10/05/2017 - 15:08

      The deposit is pre-tax, but you're still required to pay a 15% contribution tax and a 15% tax on earnings. Plus the 2.5%/7% tax on withdrawal. And of course whatever fees your super fund charges.

      I do like your scheme to travel & take advantage of an ailing property market though.

    • moonphase on 10/05/2017 - 15:13

      I know the average is 80K but I wonder if really people earning 80K is close to median.

      Many people around doesn't seems to earn that much especially who's in 20's.

      • Larz128 on 15/05/2017 - 21:07

        Median weekly total cash earnings was $1,421.00 for all full-time employees paid at the adult rate of pay, and $1,398.00 for all full-time employees. The lowest paid 10% of all full-time employees paid at the adult rate of pay received weekly total cash earnings of $866.00 or less, and the highest paid 10% received $2,638.00 or more.

        Or 74k (from May last year)
        abs.gov.au

        • moonphase on 16/05/2017 - 16:33

          Thanks. 6k differences… not that huge as I thought but still significant differences.

          Anyhow, I guess we all need to get a job with 120k+ salary jobs….

  • chumlee on 10/05/2017 - 15:15
    +3

    Government is assuming your super fund will not make bad financial choices and have negative returns

  • tsunamisurfer on 10/05/2017 - 16:22
    +1

    One of the points the article makes is the equity risk of putting your house deposit into Super. This is somewhat true but false too.

    If you are worried about capital risk, then you have the choice of changing your super into capital safe investments, low risk low returns.

    The use of Michelle and Nick (both of whom earn $60k) somewhat also reduces the value of FHSSS because at 60k each they are on a low tax bracket, if they were in the
    top 2 tax brackets the tax savings would be significantly more.

    I would put it the author of that example that a household of $120k pre-tax really has no place considering home ownership in Sydney and to some extend Melbourne too.

    Overall the article's conclusion that the FHSSS is not enough is correct, but I would wager that the knives would be out for ScoMo if it was too good and it drove up prices even more.

    This is doing more than the FHSA so the gov can say they are doing something.

    • Little hedge on 10/05/2017 - 19:04

      Fantastic point about options for super investment. First home owners could opt for a low risk cash investment, however in practice I wonder how many would be first home buyers have such a detailed understanding of their superannuation accounts.

      This is another reason why I feel super should be left out of the equation.

      • Baysew on 11/05/2017 - 14:00

        The deposit money is deemed to earn 3 per cent plus the 90 day bank bill (Currently 4.78).

        If your super funds earns more than this, the excess stays in the fund.
        If it earns less than this, it is taken from your ordinary super funds.

        The Age

        So maybe no need to change super investment options.

        • Little hedge on 11/05/2017 - 17:33

          Yep, the only caveat being if your super fund decreases in value, the withdrawal for a house deposit will come out of your previously existing super balance. A net reduction in invested super due to the scheme.

  • try2bhelpful on 10/05/2017 - 16:37
    +3

    I think this is a bad idea, the Government should be doing more about affordability, e.g. reviewing negative gearing, more about taxing overseas investment on housing, etc to cool down the market rather than people having to rob their future to pay for their current house. In some countries people can claim the interest on their house payments as a tax offset; that would be a good way to target housing for homes; rather than investments.

  • lainey13 on 10/05/2017 - 19:08
    +2

    It will help first home buyers as much as putting a maximum cap on the price of avocados will.

  • inherentchoice on 11/05/2017 - 03:28

    A lower income earner is the one who needs more help saving, but gains less benefit from this scheme than a higher income earner.

    The previous FHSA was simpler and didn't favour high income earners.

    • PoRKroLL on 11/05/2017 - 09:57
      +1

      I agree, the previous FHSA scheme introduced by labor was superior & simpler to this scheme. Getting an extra $1k for every $6k each year (on top of 3%+ IR) was great. I was on it for 4 years before the liberal party scrapped it due to "take-up rate" which is bullcrap as I believe usage of the scheme was increasing.

  • Odin on 11/05/2017 - 11:42
    +4

    What's the most you get? A couple thousand extra for a deposit in tax savings.

    It's a horrible FU to the younger generations, and nothing more.

  • lainey13 on 11/05/2017 - 12:00

    Here's a good article that explains it all.

    http://www.theage.com.au/money/budget-2017-what-first-home-b…

    • Baysew on 11/05/2017 - 14:11

      Under this scheme First Home Buyers don't get access to their super, (made under Super Guarantee payments).
      So do you agree with this scheme?

      • moar bargains on 12/05/2017 - 10:04

        Well, I think it's better than giving them access to the whole lot, but I don't think it's going to make much difference.

        I still think that the issue is house prices increasing faster that FHBs can save (due to investment demand), so it's not going to fix the fundamental problem.

  • CandyMan on 11/05/2017 - 20:15

    Cant the govt do anything right

    Higher income earners with families will benefit if the contributions are not income tested

    Keeping money in the bank is a safer option

  • MansorT on 15/05/2017 - 15:25
    +1

    If an individual is earning around 80K/year I think that this is a good scheme. About 5K plus better off no matter how you look at it.

    https://loandolphin.com.au/blog/2017/05/first-home-super-sav…

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