First Home Saver Accounts scrapped: What now?

The First Home Saver Account scheme was one of the Rudd government initiatives axed in the Abbott government’s first federal budget.

Under the scheme, First Home Saver Accounts were given concessional tax rates and government co-contributions. Despite offering a concessional tax rate of 15% on interest earned in the accounts and awarding 17% co-contributions on the first $6,000 deposited by savers each year, the scheme failed to attract many savers preparing to purchase their first home.

The scheme’s low take up has been attributed to poor marketing and the regulations attached to the accounts. In order to qualify for the benefits, savers needed to deposit a minimum of $1,000 a year over four years before they could withdraw any money in the account. If the money was not used for a payment on a saver’s first home, it was added to their superannuation account.

Any new accounts created after 13 May will be ineligible for tax concessions or co-contributions. Existing accounts will not receive any co-contributions after 1 July 2014. National tax director of professional services firm BDO Lance Cunningham says that the government has begun winding down the scheme.

“It’s basically been abolished but with a phase out, so that from budget night you won’t be able to open any more new accounts. But for existing accounts, the co-contribution will cease from 1 July 2014.”

Savers who hold existing accounts will be able to receive co-contributions for deposits made in the 2013-14 financial year up until July.

“Be careful, it’s only a budget announcement,” says Cunningham. “But it seems to be fairly clear that if you make contributions before July this year, the co-contributions will be honoured.

“If you haven’t reached the co-contribution cap, which I think is about $6000, you might consider depositing more money in the next month to receive your co-contribution.”

Although co-contributions will end on July 1 this year, tax concessions will continue for another year.

“The tax concessions will still be available up until July 2015,” says Cunningham. “They will still be treated as First Home Saver Accounts, but the concession ceases after that date. After July 2015, they will be treated as any other account.”

Savers who have held their existing accounts for less than the four year period will have to wait until 1 July 2015 to withdraw their savings.

Steven Gunzburg is a 26 year old account manager who holds a First Home Saver Account. He says that though he understands why the scheme is being scrapped, it provided good incentives to save.

"I was contributing the maximum amount, which increased over the past 3 or 4 years, every year." 

"Mainly it was a fantastic way to incentivise people to think about saving from a much earlier age. There’s no way in the world that it’s going to make the vast majority of my deposit, but it helps you get into the right mindset."

Gunzburg opened his account when he was 18 or 19, after his mother explained the benefits of the scheme.

"My mum actually found out about it, explained it to us and I begrudgingly put quite a reasonable amount of my money into the account," he says. But Gunzburg says that the scheme had its downsides.

"Part of the problem with the scheme was that it was so complex and convoluted, it was incredibly hard to understand when and how you could access your money."

When the scheme was announced in 2008, the Rudd government predicted that 750,000 First Home Saver Accounts would be opened over the next four years. However, as of December last year, only 46,000 accounts had opened.

Late last year, comparison website RateCity called for changes to the scheme. Chief executive Alex Parsons said that at the time, none of the “big four” banks offered the accounts.