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Super vs. mortgage. Which is the better investment?

Published 1 September 2017

Surprisingly, superannuation is on track to overtake the family home as Australians’ most valuable investment.

Super versus mortgage 

As property prices soar - putting home ownership out of reach for younger generations - super is becoming people’s most significant investment.

At the heart of this super vs. mortgage discussion is our changing economy. Right now the family home remains a good investment option for many Australians. But it may not be for much longer.

Superannuation is on track to overtake the family home as Australians’ most important investment, according to the Melbourne Institute's 2016 Household, Income and Labour Dynamics in Australia survey. This means super will be at the core of most peoples’ financial independence when they retire.

So, although Australians have traditionally defaulted to home ownership as our most significant investment, we may need to become more open to strategies that focus on superannuation. The good news is that such an approach may actually provide a greater level of financial independence.

The problem right now is that research by ANZ on Australian attitudes to independence reveals an approach to superannuation often out of step with the nation’s changing reality.

The importance of super

It seems we are underestimating the importance of super.

The Actuaries Institute’s 2015 white paper, For Richer, For Poorer: Retirement Incomes (PDF 7.8MB), which projects the likely asset mix of people in different wealth and age groups, makes a clear case for the importance of superannuation.

A couple with median wealth of $1.34 million at age 30, would retire at 65 years of age with only 32 per cent of their wealth in home equity, but 61 per cent in superannuation.

Nathan Bonarius, a consultant at Rice Warner, who prepared the report, says a financial strategy that focuses on super instead of property makes a lot of sense.

“Generally, superannuation is going to be more tax-effective,” Bonarius says. "People can contribute to super before they pay tax on the money," he says, "and get tax advantages on the investment income they ultimately receive – something property doesn’t offer."

With so many Australians negatively geared and relying purely on capital growth to make a return, Bonarius says an often overlooked investment risk is the property market falling or even flatlining for a long period.

Property advantages

There are some major caveats to considering super over property as the better investment over having a mortgage.

Owner-occupied property is means test-exempt, so those who own their own homes can often receive a full pension (though it’s possible that could change as home ownership falls).

Investment property offers a range of tax benefits including a 50 per cent discount on capital gains if it's held for more than 12 months. Superannuation funds also get a CGT discount when they sell property, but only at 33 per cent.

Money put into super is generally locked away until retirement, while property can be sold or rented at any time. You also can’t borrow against your super pre-retirement to improve your lifestyle or start a business.

“That’s the price you pay for those additional tax concessions in superannuation,” Bonarius says. But he argues taxes and an unpredictable market means you can’t easily turn a home into cash, so it’s unlikely to create short-term wealth.

Compound interest turns small savings into big gains

ANZ Wealth Head of Product Development and Product Strategy, Patrick Clarke, says the rising importance of super as an asset should lead Australians to pay closer attention to setting it up properly in their younger years, despite how far away the payoff may seem.

He particularly identifies compound interest, which will turn small savings into big gains over time, as the key advantage in super. By setting your account properly, sticking to an investment strategy, minimising fees, optimising insurance coverage, and not messing about with it too much, super should pretty much run itself.

And those worried about their entry into the housing market can take some comfort in the many benefits and advantages to investing actively in superannuation.

If you take ownership of your super account by consolidating your money, investing it thoughtfully and contributing what extra you can, Clarke says it can become a substantial asset, similar to how people feel about owning a home.

The payoff, in the long run, can be impressive

1. Take ownership of your super account

Consolidate and invest with contributions when you have extra funds.

2. Decide where to put your extra money

Are you more comfortable putting extra money into your mortgage or into super?

Use ASIC’s MoneySmart Super vs. mortgage tool to find out what you should invest in.


Investing in super


  • Available to many
  • Tax-effective
  • A compulsory saving system
  • Potential for funds to be diversely invested
  • Insurance within super available


  • Generally inaccessible until retirement
  • Paying fees

Investing in property


  • Home is means test-exempt for welfare entitlements
  • Tax benefits
  • Easily bought and sold
  • You can borrow against property
  • Security of owning a home


  • Increasingly expensive, unaffordable for many
  • Investing in a single asset class
  • Not a liquid investment
  • Hidden costs such as spending on rates, maintenance and renovations
  • Sigificant costs such as stamp duty

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