Is the First Home Super Saver Scheme worth using?

author-avatar By on May 10, 2021
Is the First Home Super Saver Scheme worth using?

The First Home Super Saver Scheme is one way first home buyers can get a leg up in the property market.

We’ve all heard how hard it is for young Australians to buy their first property in today’s market, given sky-high house prices, slow wage growth and the abundance of luxuries millennials seemingly struggle to forgo. So does saving for a housing deposit through a super fund make it any easier?

Let's take a look at one scheme that lets you do just that: The First Home Super Saver Scheme. 


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers. 

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 19, 2021. View disclaimer.

What is the First Home Super Saver Scheme? 

The First Home Super Saver Scheme (FHSSS) was first introduced in the 2017-18 Federal Budget by then-Treasurer Scott Morrison. Under this scheme, first home savers can make voluntary concessional (taxed at a discounted rate of 15%) and non-concessional (already taxed at your marginal rate) contributions into their super fund which can later be withdrawn for a deposit on a first home.

According to the ATO (Australian Taxation Office), first home buyers can contribute a maximum of $15,000 in any one financial year to the FHSSS scheme and a maximum of $50,000 per person overall, as of 2021. This was increased from a maximum of $30,000 previously. 

So if you’re buying a house with a partner, together you could be withdrawing up to $100,000 before tax in voluntary contributions from your super balances.

Bear in mind that Australia’s superannuation system only allows a maximum of $25,000/year to be contributed to your super at the concessional tax rate of 15%, which includes the minimum 9.5% (soon to be 10%) super guarantee from your employer. So if you earned $120,000 per year, your employer would have to pay at least $11,400 (9.5% of $120,000) on top of that into your super, which means you can only contribute an extra $13,600 ($25,000 limit minus $11,400) into your super at the concessional rate.

Why use the FHSSS? It’s all about the tax savings

Concessional super contributions are only taxed at 15%, as opposed to your marginal income tax rate, so salary sacrificing some of your pay into your super can save some serious coin.

When it comes to withdrawing these funds and the associated earnings (info about this below), the amount will be subject to a ‘withdrawal tax’ rate equal to your marginal tax rate (plus Medicare levy) minus a 30% tax offset. So, if your marginal tax rate was 32.5% and the Medicare levy is 2%, the amount would be subject to a withdrawal tax of 4.5% (32.5% marginal rate, plus 2% Medicare levy, minus 30% tax offset).

How much does the FHSSS give in returns? 

Along with allowing withdrawals of your voluntary concessional and non-concessional super contributions through the FHSSS, you can also withdraw the earnings on them. But contributions under the FHSSS don’t actually earn the same returns as the rest of your super balance.

These funds are instead ‘deemed’ to earn an annual return of the 90-day Bank Bill rate plus three percentage points, or 3%. This total rate is known as the ‘shortfall interest charge’ (SIC), which is updated quarterly. According to the ATO, the current SIC rate (April-June 2021) is 3.01%.

Given that many balanced super funds consistently achieve returns of over 8% each year, 3% seems pretty disappointing, but you might struggle to find a savings account or term deposit with an interest rate anywhere near that.

The potential savings generated through this scheme is arguably the main attraction of the FHSSS. According to Scott Morrison when it was first announced, most first home buyers could accelerate their savings by at least 30% using the scheme.

We'll take a look at whether this is true or not. 

How much could you save with the FHSSS?

According to the Government’s FHSSS estimator, someone with a taxable income of $70,000 who salary sacrifices $15,000 a year into their super could have $25,437 available for a deposit after two years – $5,846 more (30% more) than if they had saved through a standard deposit account (savings account) paying 2% p.a. in interest.

However, the government's estimator also assumes an SIC rate of 4.78% p.a, and the assumptions haven't been updated since 2019, meaning the 'standard deposit' rate is also much lower than 2%, with Savings.com.au research showing averages closer to just 0.50% p.a. 

For other incomes, salary sacrificing the same amount over two years generates different results, as the government’s estimator demonstrates:

FHSSS $15,000 Annual Contribution For Two Years ($30,000 Total)

Taxable income

Annual reduction to take home pay

Deposit available after two years

Additional savings*

Additional savings %*

$40,000

$11,235

$26,764

$4,006

17.60%

$50,000

$9,900

$25,429

$5,375

26.80%

$60,000

$9,600

$25,205

$5,759

29.62%

$70,000

$9,650

$25,355

$6,802

36.66%

$80,000

$9,800

$25,292

$5,435

27.37%

$90,000

$9,690

$24,867

$5,250

26.76%

$100,000

$9,240

$24,417

$5,711

30.53%

Source: Budget 2017-18 FHSSS Estimator. *Compared to a standard deposit account (2% p.a.).

As you can see, not everyone can accelerate their savings by over 30%. Plus, these calculations are based on old rates, and although the SIC and standard deposit rate have both fallen by similar amounts since then, these aren't a 100% accurate guide for 2021. 

By contributing up to $50,000, the savings could be even greater. 

What about smaller, longer-term contributions?

The example above is based on contributing the former maximum annual amount of $15,000 for two years until the limit of $30,000. This is hardly ideal for someone earning $40,000 a year, as this would reduce their annual take-home pay by more than $11,000 (over $200 less per week).

For people in the lower income brackets, you might want to consider taking your time and contributing smaller amounts over a longer period of time. We used the same estimator for $6,000 in annual concessional contributions over five years to see the difference it would make to a person’s savings compared to a 2% p.a. savings account.

FHSSS $6,000 Annual Contribution For Five Years ($30,000 Total)

Taxable income

Annual reduction to take home pay

Deposit available after five years

Additional savings*

Additional savings %*

$40,000

$4,290

$27,310

$5,260

24%

$50,000

$3,840

$26,951

$7,223

37%

$60,000

$3,840

$27,101

$7,373

37%

$70,000

$3,890

$26,994

$6,992

35%

$80,000

$3,930

$26,584

$6,376

32%

$90,000

$3,795

$26,134

$6,667

34%

$100,000

$3,660

$25,999

$7,228

39%

Source: Budget 2017-18 FHSSS Estimator. *Compared to a standard deposit account (2% p.a.) 

By making more spread-out contributions, both the deposit available and the percentage difference in savings you could make are higher in this instance. In fact, you could save as much as 37% more at $50,000 and $60,000.

Slow and steady wins the race it seems when it comes to using the FHSSS. The question remains however: do these savings make the scheme worth using?

Are Australians using the scheme?

At the time of writing, Australian home buyers have been able to access money from their super funds for a few years, and given the much publicised ‘housing affordability crisis’, it would make sense that Aussies are queuing up to take advantage of this scheme. Public data on the scheme is hard to come by, but an ATO spokesperson told Savings.com.au: 

“For the period 1 July 2018 to 31 March 2021 the ATO received 21,914 First Home Super Saver (FHSS) scheme release requests from individuals totalling over $296 million. For the same period, 1 July 2018 to 31 March 2021, first home super saver scheme amounts were paid to 18,492 individuals totalling around $247 million.”

This is much more than it used to be. From 2018 to 2019, just 3,337 home buyers were approved to use the scheme worth a total of $41 million. According to the ATO, there were around twice as many release requests received in 2019-20 compared to 2018-19.

But these figures are still smaller than some other schemes available. The First Home Owner Grants (FHOG), which are available on a state-by-state basis, are used by around one-third of first home buyers in some states. The more recent First Home Loan Deposit Scheme (FHLDS) meanwhile is used by as many as one-eighth of first home buyers

So why are so comparatively few Australians using the FHSSS? Not long after it was first created, those who used it reported ‘frustrations’ with the system: The ABC reported of several Hack listeners in 2018 who claimed that their money was stuck in their account for too long, and once it was released, it was already too late, and the house they were eyeing up was gone.

The ATO may also hit you with a tax of 20% of your released amounts if you sign a contract to purchase your home before they have released your money.

Prior to the 2019 Federal Election, the Labor Opposition said it would phase out the scheme for non-existing users, with former Shadow Treasurer Chris Bowen saying it was "always a fig leaf to cover up their [the Coalition government’s] failure to properly deal with housing affordability."

But that never happened, and now the scheme is being tweaked, which may see its use increase. If you do want to jump on board, how can you use it? 

Who can use the First Home Super Saver scheme?

The scheme is not designed to help you add an investment property to your portfolio, so you can only use it if you’ve never owned a property in Australia before. The one exception to this is if you have lost ownership of a previous property due to bankruptcy, divorce, or natural disaster, in which case you'd need to contact your super fund and fill out a First Home Super Saver Scheme hardship application form from the ATO.

You also need to intend to live in the property for at least six months of the first year you own it. Besides that, you really just need to be over 18 in order to request a withdrawal, although you can start making contributions at any age. You also need to be a member of a registered super fund in Australia.

Importantly, the FHSSS is also independent of other concessions for first home buyers like the FHOG, so you aren’t limited to one or the other. If you’re eligible, you can request that your employer salary sacrifices up to your desired amount or you can make non-concessional (after-tax) contributions manually.

Pros and cons of the First Home Super Saver scheme

Pros

  • You can save thousands in tax
  • You and your partner can both utilise the FHSSS towards the same house, eventually rolling the funds together into the same deposit
  • FHSSS funds earn returns higher than what could be earned through a savings account or term deposit
  • The amount you can withdraw isn’t affected by falling markets (so long as there’s enough to withdraw)
  • After withdrawal, you have up to 12 months to purchase a home with the funds (can be extended by another 12 months)

Cons

  • The scheme is subject to legislative changes with changes in governments 
  • By salary-sacrificing you’ll have less take-home pay
  • It can be a slow process, potentially taking approximately 25 business days to release your funds – enough time to miss out on your dream home!
  • You have to pay a 20% FHSSS tax if you sign a contract to buy or build before receiving your funds
  • The maximum of $50,000 a single person can contribute may not be enough to cover a deposit, at least if you want to avoid Lenders’ Mortgage Insurance (LMI), depending on where you're buying
  • Returns are restricted to the SIC rate (3.01% p.a. at the moment), which is low compared to the performance of many balanced super funds

Savings.com.au’s Two Cents

Compared to the First Home Owner’s Grant, the FHSSS might not seem like much. A grant could land you a lump sum of $10,000-$20,000 depending on your state, whereas the FHSSS may only boost your deposit by several thousand after a couple of years of salary sacrificing.

On the other hand, the grants are limited to one per household, whereas the FHSSS can be used by two people. So with a partner, together you could be boosting your savings by much more. It’s up to you to consider whether the additional paperwork, slow process and reduced take-home pay is worth it.

Given this scheme can be quite complicated, you might want to think about speaking to a financial adviser about it. 


Photo by Kelly Sikkema on Unsplash   

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author-avatar
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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