Including your home in the age pension assets test mooted to help housing crisis

Kicking a hornet’s nest, the Actuaries Institute has called on the Australian Government to both incentivise and compel older Australians to unlock equity in their homes either by selling up and downsizing or taking out a reverse mortgage on the property.

The most contentious suggestion by report author Andrew Boal, who says a growing number of retirees are “stuck in an asset-rich income-poor trap”, is that the Government “considers the value of family homes above $2.1 million” in the Age Pension asset means test.

This would mean reduced pensions for many older Australians, forcing them to sell and downsize, sign up for a reverse mortgage or apply for the Federal Government’s Home Equity Access Scheme.

Refunding stamp duty

Other suggestions include removing or refunding stamp duty for over 55 downsizers, relaxing rules around downsizer super contributions and providing Age Pension means test relief on money accessed through home equity release schemes.

“If retirees accessed 20 per cent of the $1.3 trillion they hold in home equity, it would unlock about $260 billion to help fund what could be 25 to 30 years or more in retirement,” Mr Boal said, adding it would make more housing stock available to younger Australians.

But Chris Grice, CEO of National Seniors Australia, says older Australian crave certainty and will do anything to protect their pension, even if it means staying put to avoid an assets test.

He says the cohort is also intimidated by the cost of buying and selling properties, while many believe the cost of apartments they’d want to live is not that different to their existing dwelling.

“You’ve also got aged care tied up in this as well. Whether these fears are real or not, these are the perceptions that older Australians have, and these are the reasons why they are not downsizing,” says Grice.

No answer for more housing

Real Estate Institute of Australia President, Leanne Pilkington, said the home means test reform suggested by the Actuaries Institute lacks context and would make zero difference to housing supply.

“This proposal appears to be an arbitrary measure that doesn’t consider the whole taxation and retirement system in context,” said Pilkington.

“It would be complex if not impossible to administer when you take into account cities compared with the regions, changes to median values over time and households’ individual circumstances.

“It also wouldn’t generate any additional affordable housing stock in the existing inventory.”

Financial advisor Noel Whittaker said the idea of including the family home above a certain level in the Age Pension is a “stupid idea”.

“It would be a very brave government that would take something like this to an election. It’s not going to happen,” he said.

But he supported the use of reverse mortgages to help fund retirement.

“The government has made it very, very clear they expect people to use the equity in their houses for their retirement,” said Whittaker.

“The average superannuation balance on retirement is I think $275,000 for blokes and maybe $250,000 for women, so they need something.”

This article was originally published on view.com.au.