Chapter 4Superannuation-based shared equity schemes
Support for superannuation-based shared equity schemes
4.1The committee also received evidence specifically in support of superannuation-based shared equity approaches.
4.2In its submission to this inquiry, HomeSuper advocated in favour of co-investment of superannuation into members’ homes on the basis that it would mean less debt is required for the purchase of a home and less risk to the fund’s objective. They highlighted the long term nature of superannuation as ‘patient capital’, being well-placed for property investment. HomeSuper also noted residential property ‘offers comparable investment market returns with relatively low risk over longer periods’.
4.3The Senate Report into the Housing Australia Future Fund (HAFF) Bill 2023 and related bills identified that Industry Super Australia spoke of 'equity ownership' of housing by superannuation funds possibly eventuating as a feature of the HAFF financing model.
4.4The Centre for Independent Studies (CIS) advised any diminishing of retirement savings of shared equity participants would be partially offset by capital gains from the value of the house increasing. They also observed the equity share that gets returned to a superannuation fund upon sale would correspondingly increase. The CIS further suggested that any negative impacts on retirement savings could be mitigated by placing a limit on funds that could be used for this, and a higher interest rate for repayment of the superannuation funds.
Regulatory considerations for superannuation shared equity schemes
4.5The committee was advised that there are regulatory challenges to introducing superannuation shared equity schemes.
4.6HomeSuper identified that superannuation shared equity schemes, as a product innovation, would be challenging to bring to market in Australia due to the complex regulatory system and lack of avenues to obtain product rulings to ensure the product is legally compliant.
4.7Trustees of superannuation funds are subject to a number of regulations, including regulations which require formulation and implementation of an investment strategy which is suitable for the entity’s circumstances.
4.8The objectives and regulation of the superannuation industry, established by statute, require superannuation trustees to undertake prudent management of funds. It appears that there are no current obligations on funds which would require them to consider the housing security of individuals who would live in homes purchased through a shared equity scheme.
4.9Trustees of regulated superannuation funds are also required to be maintained solely for one or more of the core purposes and ancillary purposes established under the Superannuation Industry (Supervision) Act 1993.
4.10HomeSuper advised that it is not clear whether superannuation investment into shared equity schemes would meet the sole purpose test. They noted that APRA has withdrawn their guidance on this sole purpose test, and that interpretation of this test can be subjective.
4.11It is not clear whether members of self-managed superannuation funds (SMSFs) would be eligible to purchase homes using a superannuation shared equity scheme with their fund. SMSFs are generally required to make investments at an arm’s length basis. It is not clear how this obligation would interact with a superannuation shared equity scheme under which a member of an SMSF is directing the superannuation funds to the purchase of a home for that member to live in.
4.12Justice Moshinsky, in an extra-curial speech delivered in 2018, identified that the long-standing obligation for superannuation funds to act in the best interests of fund beneficiaries had been the subject of only limited case law.
4.13Having surveyed the existing case law concerning the best interests duty, Justice Moshinsky observed that decisions about best interests need to be resolved on a case-by-case basis, and concluded his assessment observing that difficult questions remain outstanding.
4.14The regulator of superannuation funds depends on the type of fund being regulated. The Australian Prudential Regulatory Authority (APRA) regulates most funds, while SMSFs are regulated by the Australian Taxation Office (ATO).
4.15Mr Simon Jones, founder and managing director of HomeSuper noted that APRA is not currently able to provide product rulings. He suggested that there should be some policy settings to allow APRA to engage in the process of product rulings.
4.16PowerHousing Australia identified the potential for pre-existing systems and infrastructure, such as Centrepay, to assist in shared equity purchasing arrangements. Such a system could link banks with potential equity holders and tenants transitioning into shared equity home ownership.