Former prime minister Paul Keating has savaged suggestions superannuation be used for house deposits, saying it would “destroy universal retirement savings”.

Treasurer Joe Hockey floated the idea at a forum on Saturday and said super had to be more “flexible” to allow people to dip into their savings over the course of their lives.

In a column published in the Australian Financial Review and The Age, Mr Keating described the idea as a “horror story”.

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“Where would the country be with the Commonwealth budget growing in deficit, without the $1.9 trillion pool of investable superannuation savings?” Mr Keating wrote.

He said breaking the principle of preservation, where savings aren’t accessible until the age of 55, would destroy “one of the best retirement systems in the world”.

“The key to wealth accumulation in retirement savings is compound earnings … Such growth in the asset base could not happen if people were permitted to take funds for convenience.”

Mr Hockey floated the idea to help young people enter the housing market. Photo: Getty

“This idea is certainly not an innovation and is not responsible enough to even be considered a thought bubble.”

Prime Minister Tony Abbott said the government had no plans to introduce the policy, but said the idea of using mandatory savings to be invested in property “had a lot of currency” in countries like Singapore.

“It is a perfectly good and respectable idea,” Mr Abbott said.

“It is something I am very happy to see further debated.”

Mr Keating challenged business groups to defend the superannuation system, and said the $1.9 trillion industry had helped lower the cost of capital compared to other advanced countries.

“Before 1992, the cost of capital for Australian business was well above the OECD average; today it is well below it,” he said.

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,” Ms Vamos said.