Why the First Home Super Saver scheme isn't worth the effort


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With income-to-household debt ratios quintupling since the 1980s to 194% in 2017, it clearly takes more than turning down smashed avocado to buy your first home.

And yet our proportion of social housing, which should act as a safety net for vulnerable people, is one of the lowest in the OECD at 4.2%.

Put simply, home ownership is increasingly unattainable and in steady decline. To help, the federal government has introduced the FHSS.

first home super saver scheme

At first glance the scheme seems reasonable. But it actually has a tricky design.

For a start, the maximum contribution of $30,000 per person, plus interest, may not go a long way in a capital city.

The trickiness arises because the benefits are upfront in lowering personal tax, and the balance withdrawn from the super fund will be lower than the balance withdrawn from an ordinary savings account, unless the personal tax benefit is invested.

Modelling conducted by Phil Gallagher, a former treasury official and now Industry Super Australia's special adviser, shows that, due to contributions and withdrawal tax from the super fund, many home savers would save more with a regular savings account.

For example, a person on around $56,000 who saved $15,000 in 2017-18 and 2018-19 would save $3549 more in an ordinary savings account after the super withdrawal tax.

At this point some would argue that this doesn't matter because returns are "guaranteed" at 4.78%pa.

They are. But those guaranteed earnings will have to come from somewhere, and it will be consumers who pay. When returns fall short, super funds will be forced to dip into individual compulsory savings, which, over the long run, will eat into retirement nest eggs.

At best, the tax benefits of the FHSS scheme are marginal. For many, the benefits are not in the amount saved inside super.

At its worst, like the previous buyer grants, the scheme, depending on its popularity, is likely to drive up demand, leaving families either more indebted or still locked out.

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June 23, 2018 1.50pm

Yes but $15000 post tax savings in a bank is not the same as $15000 pre tax super savings. This story is terrible and lacking in an actual representation of facts.

The FhSs is not the best plan out there. It's complicated sure. But the added benefit is if your fhss contributions earn more than 4.78% which many super funds are closer to 10% returns, the extra goes into your nest egg. I would say this is best suited to people within 2-3 yrs of buying a house who just want to get there a little faster ($5-6k extra is usually months of savings time saved) who can watch how their super is doing. You can pull the money up to 12 months before you buy so if super is going badly you can pull it a bit early and stash in a bank for the last bit.

September 27, 2018 9.49pm

What a terrible article and complete misrepresentation of the facts. Firstly, there is a tax offset of 30% for withdrawals - this includes the voluntary concessional contributions and earnings. Secondly, you have completely disregarded the fact both the contribution(if concessional) and earnings are taxed at 15% and not the marginal rate. As far as your expert suggesting a savings account can mirror these benefits - that's complete and utter nonsense. Although I agree the 30K limits is a joke, you have completely misrepresented the facts and disregarded the benefit of reducing your taxable income, as well as paying less on returns. Anyone who reads this article, please look at the legislation and use the calculators available on sites like money smart. This article should be removed.

April 24, 2019 3.33pm

This piece is completely out of touch with reality. Even if the facts above are correct (in which they aren't), in what world would $3,549 in additional deposit not matter to someone who is on $56k p.a. For a couple, thats $7,098. If that's not worth the effort in your books, you're probably getting paid too much.
The scheme is solid in concept but where it falls down is around timing off the release of funds. Users of the scheme need to be well prepared and should probably seek professional advice to avoid having signing a contract before funds are released or being put in a position where they don't have funds available because they are yet to be released.

July 11, 2019 5.11pm

What a totally inaccurate piece of analysis completely lacking in transparency in terms of the assumptions underlying the bogus claim you can save more outside of super versus inside of super from the crew at compare the pair. Hopefully this author gets the chop.

Patrick Hansen
June 25, 2020 2.43pm

Thanks for all the financial advice in the comments. way more helpful than actual article and in line with my own research after talking to my super fund and the ATO