Nick Bruining: Making a mistake under the First Home Super Saver Scheme could lock up cash for decades

While the benefits of the First Home Super Saver Scheme can be significant, the take-up rate is surprisingly poor.

Word may be out that if you don’t follow the rules to the letter, your money could be locked away for decades. Nearly a quarter of all applications to release funds under the scheme have been rejected by the Australian Tax Office.

The scheme was introduced by the Turnbull government in 2017 as a means to placate calls by many at the time that demanded access to superannuation savings for housing.

The ATO told Your Money that in the six years from the start of the scheme to the end of June last year, just 38,300 of the 50,400 individuals who had applied for the release of funds under the scheme had successfully received payouts that averaged $14,723 each.

With nearly 7.5 million super fund members aged under 40 — and at an age more likely to make use of first-homebuyer concessions — that represents a paltry 0.5 per cent of eligible members.

Some with first-hand experience of the FHSSS say that lack of awareness and the complicated process to access funds might be partially responsible for the low take-up rate.

Independent financial planner Petrese Ivey, who has helped younger clients make use of the scheme, said the complexities of superannuation don’t help. Many of those who use the scheme have done so at the direction of parents or others who better understand the benefits.

“I think many people in that age group aren’t aware how superannuation works anyway and how it fits into their overall financial picture,” Ms Ivey said.

“When they make an enquiry about the FHSS, they’re confronted with very strict and confusing rules that don’t take prisoners.”

An ATO spokesman said there were several reasons behind the huge gap between the number of applications lodged and those that were successful.

“The request may have been ineligible, the individual’s super fund may not have been able to release any or all of the requested amount or perhaps because the fund trust deed rules may prevent release” he said.

“Withholding or offsetting for an unpaid Commonwealth debt may have applied as well.”

Making a mistake that makes you ineligible to access the money under the scheme’s rules means the money stays in the superannuation system until you reach normal conditions of release, typically at retirement.

In any event, improved flexibility will hopefully improve the popularity of the FHSSS.

“The fact is, using the FHSS can mean a substantially bigger amount to be used for a deposit,” Ms Ivey said.

“Like anything, a little bit of education can put you well ahead of the pack.”

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association