Super won’t be election issue but home equity access scheme will be sold hard

We can look forward to a lot of arguments in the coming federal election campaign but superannuation is probably one area that won’t feature.

In a rare show of bipartisanship, both sides have basically agreed to stop tinkering with the super system – for now.

The superannuation minister, Jane Hume, has now locked the federal government into proceeding with the legislated rise in the superannuation guarantee to 12% by 2025.

Perhaps bruised by the constant speculation about super being allowed to be taken as wages instead or to buy housing, she has put to bed any further meddling with the super guarantee – a position that has been echoed by the shadow minister for superannuation, Stephen Jones.

Mr Jones also reiterated Labor’s support to link super fund capital with government projects, with the partnerships growing members retirement savings while helping the economy.

Relaunched reverse mortgage scheme will be pushed hard

That is not to say that the matter of retirement incomes will not become a battle ground, with the relaunch of the home equity access scheme that will come into effect on 1 January something the government will be able to campaign on.

Changing the name of the scheme from the previous misleading label of the Pension Loans Scheme is the first change to make it a selling point, with the second being the reduction in the interest rate to be charged from 1 January from 4.5% to 3.95%.

The reason the name was changed is that this scheme applies to all retirees – not just pensioners – so the change should greatly increase its use among retirees who are asset rich, but income poor.

Other attractions of the scheme are that you can withdraw a non-taxable amount fortnightly up to 150% of the age pension rate – making this quite attractive for many people.

An added advantage is that a couple of lump sums can be withdrawn every year to meet larger bills and under the scheme, there is a no negative equity guarantee, which means you can never owe more than the house is worth – even if it falls in value.

Self-funded retirees the new target

The wider applicability of the scheme should help to expand it to the ranks of the self-funded retirees – many of whom are stuck in a situation in which their income is below what they would like even though they are in a healthy asset position when the value of their house is taken into consideration.

From the government perspective, the scheme should help to stimulate the economy given that many retirees are willing but unable to spend more than they do.

Given the long-term trajectory of house prices in Australia and the more expensive interest rates applicable, there is every chance the government might come out on top as well.

The big kicker is that with the rebadged scheme starting on 1 January, it falls nicely just before the federal election, which most pundits believe will be called for either March or May next year.

Super performance tests also an effective reform

Another superannuation reform that the government can hang its hat on is the superannuation performance tests, which were recently released for choice funds.

Ironically, large industry super funds featured as some of the top performers for both default and choice funds, with the top end of the Australian Prudential Regulation Authority’s (APRA) test featuring big funds including AustralianSuper, Aware Super, QSuper, Cbus and Hostplus.

APRA’s focus on superannuation performance is proving effective in weeding out dud funds with 22 poorly performing default products having closed since the regulator published its first heat map in December 2019, with seven of the 13 poorly performing funds named in August having merged with another fund or entered into merger talks.