The Australian Parliament has finally approved legislation which provides incentives to allow retirees to top-up their superannuation when downsizing from the family home.
On 5 December, the Australian Senate approved the legislation, which was first announced in the May 2017 budget and will now come into effect on 1 July 2018.
However, the legislation did not have an easy ride. While ALP MPs appeared to support the seniors’ superannuation incentive, they decided to oppose the legislation. This is because the incentive was included in the same legislation as a separate measure to allow first home buyers to access their superannuation (which ALP MPs did not support).
For instance, speaking to the legislation in the House of Representatives on 18 October, Parramatta ALP MP Julie Owens said the Opposition would have preferred that the seniors and first home buyers housing affordability measures had travelled in different bills. Ms Owen also criticised the government for, in 2014, scrapping a program announced by former Prime Minister Kevin Rudd in 2013 to exempt up to $200,000 from family home sales from the aged pension asset test. This comment raises some hope that the ALP may seek to revive this measure if it returns to government.
Separately, the legislation was delayed for several weeks by extended debate on the same sex marriage legislation.
As part of the legislative package, people aged over 65 will find it easier to contribute up to $300,000 from selling the family home into their personal superannuation fund.
The $300,000 contribution will be exempt from the existing age and work tests for people aged over 65.
This would mean, for instance, that someone who is aged over 75 who is currently not allowed to make voluntary superannuation contributions will be able to do this from 1 July 2018 when selling the family home.
Similarly, currently if you are aged 65 to 74, you must have worked for at least 40 hours over 30 consecutive days in the financial year to be allowed to make a voluntary contribution. From 1 July 2018, that rule will also not apply for contributions from the proceeds of the family home.
Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation.
In announcing the changes as part of the 2017-18 budget in May 2017, the Australian Government said the initiative would “encourage some people to downsize into housing that is more suitable to their needs, freeing up larger family homes.”
An August 2017 report by National Seniors Australia found that about 17 per cent of people aged over 50 – who had yet to downsize – considered the government’s superannuation incentive as a factor which would encourage them to downsize. This survey included people who, until now, have had no intention to downsize.
Given that the superannuation contributions could still impact on the pension asset test for some people, the new measure is expected to be most attractive to self-funded retirees.
Amanda Graham, the Co-CEO of Downsizing.com.au and SeniorsHousingOnline.com.au, welcomed the legislation but said it would not be a “silver bullet” solution for all retirees.
“Unfortunately, proceeds from the family home could affect a person’s pension asset test, and the purchase of new downsizing-friendly homes may be subject to State Government stamp duties, so it's very important to get financial advice first based on your personal situation” Ms Graham said.
“The pension asset test and stamp duty are two issues which have been previously identified as significant barriers to downsizing in our research and we know many retirees would welcome action from governments on both the State and national level on this front.”