Actuaries Institute calls for rethink on excluding value of family home from Centrelink pension means testing

Actuaries have recommended counting pensioners’ homes in means testing to help make housing more available for battling younger Australians.

A new Actuaries Institute report decries the assets test loophole allowing many wealthy Australians to receive a welfare payment “intended as a safety net for the relatively poor”.

The report, to be released on Monday, suggests the steady introduction of high-value homes in Centrelink asset tests — something suggested in the Henry Tax Review in 2010 for homes valued above $1.2 million.

Pointing out this threshold would now be $2.1m if indexed at 4 per cent, the report says it could have variations for regions and postcodes.

“Many retirees live more frugally than they need to by not downsizing, with the government then paying a higher age pension amount than otherwise,” the report said.

“It is effectively a stalemate, with the by-product of a certain amount of desirable housing stock locked away from families and instead used by single or couple retirees.”

But the report acknowledges any changes to the special tax and social security treatment is “politically difficult because of homeownership’s emotive value centred on lifestyle and security”.

The Centrelink age pension means testing excludes the principal place of residence, creating what a variety of private and official reports have warned is a long-term distortion to housing demand and prices.

It points to the price of houses in Australia growing by around 415 per cent since this test was introduced in its current form in 1985, while home unit prices have risen by 293 per cent.

This has far exceeded inflation and wage growth, with the report citing research indicating the ratio of housing prices to household disposable income rose from 2.5 in 1991 to 5.5 in 2021.

Unaffordability has since surged by more than half again to 8.5 in the post-COVID residential property boom.

Actuaries Institute retirement strategy group chair Andrew Boal said the property price booms had caught many retirees in an asset-rich, income-poor trap.

“While most retirees own their own home, 60 per cent retire with less than $250,000 in their super,” said Mr Boal, the report’s author. “As a result, they’re often living more frugally than they need to. But this doesn’t need to be the case.”

Mr Boal, a partner in Deloitte’s superannuation and investments practice, said the home should be put alongside the age pension, superannuation and private savings and treated as another financial asset to fund lifestyles.

The Actuaries Institute report points to estimates by Deloitte that $1.3 trillion of home equity could be available to retirees. It suggest a carrot and stick approach to the problems.

In addition to a debate about the means testing, it calls for reforms to boost stamp duty concessions for downsizers aged over 55 and long-term means-testing concessions for money released by retirees when buying a cheaper home.

The report suggests a means-testing concession of up to $600,000 for cash released by a couple downsizing and around $300,000 for a single homeowner.

The concession could be reduced over time for each downsizer and be focused on those who bought annuities or other longevity protection.

Mr Boal said policy changes would need to be phased in.