Super is under serious, and existential, threat as a retirement vehicle.
No, it's not the increased tax on large balances.
And no, despite the ridiculousness of the Opposition's 'Super for Houses' thing, it's not that, either (though we'll be treading similar ground).
The biggest threat to Super is house prices. And the inexorable push for longer mortgage terms.
You might remember me railing against 40-year mortgages that were being discussed a while back.
You also might have seen that US President Donald Trump is heralding a 50-year mortgage over in the States.
It's a lovely political bait-and-switch, of course.
See, on day one, the repayments actually are lower. The same loan, paid over 50, rather than 30, years, will cost less, per month.
Except there's not just one, but two stings in the tail.
First, over 50 years, you'll pay a lot, lot more interest in total. Something that looks more affordable on day one (the simple 'dollars per month' repayment) ends up being a Trojan Horse for paying a motza over a lifetime.
Don't believe me? Or just want to see it for yourself? Good plan. Here are the numbers:
Let's pick a $1m loan, with a 5.68% interest rate (the average interest rate quoted on ASIC's MoneySmart website), to keep things simple.
When I was a kid (yes, I'm going there), the longest regular mortgage was 25 years.
The monthly repayment on that loan would be $6,248.
Over 30 years? It falls to $5,791.
40 years? $5,281
And it's 'only' $5,029 over 50 years.
Much cheaper, right?
Nope. Wait until you see the full numbers for each loan term:
25 years: $847,650 in interest, $1,847,650 in total.
30 years: $1,084,881 in interest, $2,084,881 in total.
40 years: $1,534,752 in interest, $2,534,752 in total.
50 years(!): $2,017,484 in interest, $3,017,484 in total.
I mean, even the first number is extraordinary.
And even if you want to argue that comparing against a 25-year loan is unrealistic, a 40 year loan would still see someone pay $450,000 more over the loan's life, compared to a 30 year loan, and a whopping $933,000 more if they took the 50-year term!
That should, frankly, be the end of the argument.
But what if your view is 'hey, at least they can get a house'?
It's a very good point. But let me tell you (and we haven't even got to the Super thing, yet!), this is the second 'sting'.
See, let's say you can currently afford a $5,791 monthly repayment on that 30 year mortgage.
So can John, and so can Jane.
The three of you are about to go to auction to use your $1m buying power to buy a home.
Except John and Jane have just spoken to their bank manager, who let them know they have 50-year mortgages available.
John says "Beauty! I'll pay a little less each month and spend the savings on something else".
That'd be a financially bad decision, as I mentioned above, but it's a free country.
Jane thinks for a minute, and realises something.
"Umm… if a longer term means lower monthly repayments, doesn't it also mean I can borrow more at the original repayment?"
Jane's already thinking about buying a better place, in a better location.
The bank manager's eyes light up – she's about to get a nice bonus for increasing the bank's loan book.
"Why yes", she says, as she taps away on the keyboard.
"You can afford to pay the originally assessed $5,791 each month… so if you took a 50-year mortgage, you can borrow $1.15m instead of just $1 million."
That is music to Jane's ears, and she goes to the auction with another 15% purchasing power.
John gets wind of the same idea, though, and just before the auction, he asks his manager the same thing – and gets the same answer.
As the auctioneer goes through his paces, you drop out of the bidding once the price goes above what you can afford with your $1m, 30-year loan.
John and Jane keep going, though, until Jane finally wins the bid, using the full $1.15m loan.
She feels great until the adrenaline wears off and she realises that she and John ended up just bidding against each other using the extra debt: had the bank only offered 30 year loans, they both would have stopped $150,000 earlier, and Jane wouldn't be spending an additional 20 years in debt.
Meanwhile, the home seller and the bank manager open a bottle of French bubbly, celebrating their good fortune at getting a higher price and more interest out of Jane, thanks to this new 'more affordable' 50-year home loan term.
That echo they hear in the distance? That's the same thing happening across the country, as buyers, all with increased borrowing capacity, desperately outbid each other, pushing prices ever higher, and doing exactly nothing to improve affordability.
That is where our tale of woe might end. And that would be more than enough for any reasonable Treasurer (or Shadow Treasurer) and regulator to step in and say they're putting a hard cap on mortgages at 30 years.
(It should also be enough for the Federal Opposition to realise that 'Super for Housing' would do precisely the same thing to prices – and they should drop that policy, forthwith.)
Unfortunately, though, it gets worse.
Because, unless you're taking that 50-year mortgage at 17, you'll still be paying when you retire.
At which point?
At which point, Joe DiMaggio, a nation turns its lonely eyes to you.
(Kids, ask your parents about the song, Mrs. Robinson)
Or, if not to Mr DiMaggio, the next best thing: the nation's retirement savings.
Let's say Jane, having bought the house at 32, gets to 67, with 15 years left on the mortgage.
She could keep working, of course, until it's paid off.
Or she could open her Super statement and see a nice lump sum which, while supposed to be used for retirement income, might mean she could actually pay off the rest of the mortgage and stop working.
I mean, sure, it might be her whole Super balance. Or a large chunk of it. And sure, that means a poorer retirement than she might have otherwise enjoyed.
But it's that, or keep working.
Can you see what just happened?
Not only did Jane have to pay a lot more for her home.
Not only did Jane have to pay a lot more in interest to her bank.
But she also had to rob her retirement in the process.
How long, do you imagine, before that becomes the norm, not the exception?
How long until people actually aim to use their Super for that purpose.
And once some do – and push house prices up even further – how long until other people have no choice but to use their Super just to compete to get a roof over their heads?
Super balances are and will increasingly be eyed as 'get out of jail' lump sums – something that, if it continues, will turn Super into a 'Home Loan Extinguishment Program', rather than a 'retirement income' one.
If that continues, it will completely and permanently undermine the wonderful thing that Superannuation is and could be.
We will have stolen defeat from the jaws of victory.
And can you see the ratcheting up, here?
25 year loans have become 30. Some Australian banks are offering 40 already. And the US is (bizarrely) championing 50.
First Home Buyers are being encouraged to buy with only a 5% deposit, adding fuel to the fire.
No, housing availability and affordability is not the only issue we face. But, economically, it is fast becoming the biggest one, if it isn't already.
It has slowly consumed ever-higher proportions of take-home incomes, as prices have risen.
It threatens to take not only even higher proportions of incomes, but higher proportions of incomes for even longer.
And then to take a chunk of Super on top of that.
If you're not depressed by that idea, please have another read.
While ever our politicians continue to wilfully ignore the problem – and worse, throw more money at buyers, pushing up prices, with a completely false pretence of addressing the issue – it will continue to get worse.
If they care about our young people, they must cap loan terms at 30 years.
And if they care about our young people – and the stability and continuity of both Super and the cost of the aged pension – they'll specifically require banks to ignore Super when assessing the ability of a borrower to pay.
Every now and then, someone tells me they're worried about the government not being able to resist the urge to raid our Super in some way or another.
It may happen. But it's also possible that we're not looking close enough to home.
Unless we ask our politicians to set the appropriate boundaries, we might end up – unwittingly – being the problem.
Just possibly, as the cartoonist Walt Kelly wrote, we have seen the enemy, and it is us.
Housing affordability, and a comfortable retirement, might be the victims.
Fool on!
