Currently, the First Home Super Saver scheme allows for up to $15,000 of voluntary super contributions to be channeled towards purchasing a first home. Additionally, the Coalition proposes a policy to permit the withdrawal of as much as $50,000 of superannuation for the same purpose ahead of the upcoming election.
This potential shift was highlighted by Kate Anderson, General Manager at Class, during a panel discussion held on Wednesday at Ignite, an event organized by Class, a HUB24-owned SMSF administration service provider. Anderson responded to the surge of millennials eager to break into the housing market despite high property prices, particularly those with significant superannuation balances.
"In Australia, there's undeniably a strong affinity for property investment," Anderson remarked. "Many individuals are gravitating towards setting up SMSFs primarily for property investment."
According to Anderson, millennials in metropolitan areas are especially likely to adopt SMSFs due to their substantial super balances, enabling them to save for property deposits more efficiently within superannuation rather than external savings.
"Although it's a hot topic and somewhat divisive, discussions with financial planners and accountants indicate that SMSFs remain a prominent consideration for millennials," she elaborated.
Backing Anderson's perspective, Meg Heffron, Managing Director of Heffron, pointed out that the combination of compulsory super contributions and dual incomes allows younger investors to amass more funds within their SMSFs than their bank accounts.
"When couples contribute 12 percent of their incomes to super annually, the inflow to their SMSF often surpasses their liquid savings available for a mortgage," Heffron said.
Nevertheless, while SMSFs could provide a feasible solution for younger populations grappling with housing affordability, this approach may still clash with AFCA policies, which caution against heavily property-concentrated SMSFs.
Insights from this perspective emerged as Class released its Annual Benchmark Report, revealing that millennials constitute the second largest demographic establishing SMSFs, about 27.7 percent of new setups in FY24. In contrast, Gen X leads with 52.9 percent. The median age for new fund members on the Class platform was 49, holding steady from FY23, but down from 54 in FY11. Furthermore, average balances for newly established funds saw a year-to-year increase of 9.2 percent, from $492,000 to $537,000.
Amidst this, larger super funds regulated by APRA are progressively enhancing their offerings. Melanie Dunn, Principal and Senior Actuary at Accurium, observed, "APRA-regulated funds are stepping up efforts to provide tailored retirement solutions."
Dunn referenced data from last year's conference, which depicted that half of eligible APRA fund members were on tax-exempt income streams compared to seven out of eight SMSF members.
"Retirement income strategies have prompted APRA funds to innovate investment options, offering greater flexibility akin to SMSF benefits but without the overhead of managing one," Dunn added, mentioning notable funds like Australian Retirement Trust and AustralianSuper.
The ongoing debate around the Division 296 tax, spearheaded by the Labor government to amend tax concessions for super balances exceeding $3 million, particularly taxing unrealized gains, remains a contentious issue for SMSFs. Class CEO Tim Steele pointed out the potential challenges this legislation could pose, especially for small business owners and farmers who traditionally leverage SMSFs for property holdings.
Peter Burgess, CEO of the SMSF Association, noted that the proposed bill faces significant hurdles in the Senate, making it challenging for the government to secure necessary support for its passage. Furthermore, he mentioned alternative methods the government could utilize to reclaim tax concessions from large balance accounts without targeting unrealized gains.
