Superannuation groups have given the thumbs down to a proposal that would allow first homebuyers to dip into their retirement savings to fund home purchases.

Treasurer Joe Hockey indicated last week that the government might make it easier for homebuyers to get early access to super.

“We are prepared to look at a diverse range of proposals to help young Australians buy their first home,” he said.

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The push to relax the early release superannuation rules for first homebuyers has been led by South Australian independent senator Nick Xenophon.

Mr Xenophon welcomed the government’s move to open debate on the issue, saying carefully developed reforms could deliver benefits for homebuyers.

Mr Xenophon said he had not had discussions with Mr Hockey about the proposal.

“I was surprised by the government’s comments – I think the government’s engagement on this issue is impressive and welcomed,” he told The New Daily.

“There needs to be access to super to help people with home ownership, but it needs to come with safeguards to deal with the potential inflationary effects on the property market.

“That might include some tweaking of the negative gearing rules.”

Independent Senator Nick Xenophon. Photo: AAP

Last July, Mr Xenophon proposed a Canadian model for early release super where first homebuyers are required to pay back the money withdrawn within 15 years.

Peak superannuation bodies have hit out at the idea, saying it will push up property prices and erode the retirement incomes of Australians.

Pauline Vamos, the chief executive of the Association of Superannuation Funds of Australia (ASFA), said using super to fund housing deposits could actually lead to worse outcomes when it comes to housing affordability.

“Housing affordability is best addressed through policy measures directed at making housing more affordable, including through the release of land, rezoning, the lowering of stamp duty, the funding of assisted housing and other measures designed to reduce costs and increase supply,” she said.

“Policies that merely increase the capacity of individuals to pay for housing often have the effect of driving up housing prices, eroding any positive impact on housing affordability.”

Research undertaken by ASFA suggests that if a 30-year-old takes out $25,000 to fund a home deposit, they will have $54,000 less in their super account when they retire at 67.

“We know the earlier you start saving for your retirement, the more you benefit from returns and compound interest,” Ms Vamos said.

“This works in reverse when it comes to taking money out of super.

“If you take it out at a young age, the more you lose these benefits and the more your final balance will fall.”

Industry funds are also opposed to relaxing the early release rules, arguing that it would undermine the principle of the retirement savings system.

“This proposal could Inflate house prices and reduce savings that would otherwise grow many times due to compound interest,” said Industry Super Australia CEO David Whiteley.

“Super funds could also face increased liquidity demands, undermining optimal asset allocation and potentially reducing investment returns to members.”

Under existing early release rules, superannuation members can only draw down on their retirement savings if they are experiencing severe financial hardship.

Official government figures shows that more than 19,000 Australians got early access to superannuation cash last year, many of whom were home borrowers who had fallen behind on loan repayments.