29 July 2019
Way back in December 1912, former Australian Prime Minister Andrew Fisher decided to exempt the full value of the family home from the age pension assets test.
“Those who have built up a home…are entitled to keep that home, and live in it if they can find the means,” Mr Fisher said, in support of his decision.
Incredibly, some 107 years later, this exemption is under attack.
Prominent economist Chris Richardson, a partner of Deloitte Access Economics, got the ball rolling in mid-July with a statement that including the family home in the assets test was the “right thing to do”.
“You have some people who have incredibly valuable homes and yet qualify for the pension,” Mr Richardson said.
On 23 July, Sydney-based Federal Liberal MP Craig Kelly blundered into the debate, by making some comments that were interpreted as meaning that he thought the family home should be included in the pension assets test, to encourage people to downsize.
Mr Kelly seemed to be saying that, if the government allowed someone to use their super to buy a home, then part of that home’s value should be included in the pension assets test. But his comments were anything but clear, sparking speculation about what he really meant.
The ALP seized on the comments, stating that they would mean "more retirees will be pushed off the pension, out of their homes or both.”
In return, Treasurer Josh Frydenberg denied any change to include the family home in the assets test was being considered. "It’s not our policy and it never will be,” he said.
What’s clear is that a robust policy debate is now underway about how Australia plans and delivers retirement incomes, including pensions.
The way the family home is treated, as part of pension payments, represents a central part of this debate. More than one hundred years of policy stability is being questioned.
Productivity Commission likely to push for family home exemption to be scrapped
This debate follows the decision by the government to call a retirement income policy review. The terms of reference for this review are currently being drafted, sparking the political jousting and commentary highlighted above.
It’s not clear, at this time, who will conduct the review.
If the government calls on its independent social and economics advisor, the Productivity Commission, to undertake the review, then it is almost certain the government will be advised to include the family home in the pension assets test.
In its 2011 report into aged care services, the Commission questioned the ongoing family home pension exemption.
The Commission stated that “the current assets test has a significant deterrent effect on people’s willingness to sell their home and move to more appropriate housing, particularly if that would involve renting or other forms of periodic payment for accommodation — including residential care.”
It also stated that “the current pension assets test provides an incentive for older Australians to invest in their principal residence, encouraging capital into an asset that may not necessarily yield the best return for the individual or the nation.”
However, the Commission stopped short of recommending that the family home exemption be scrapped, arguing that this should be examined in a separate broader review.
This broader review is now about to be called, potentially giving the Commission a platform to once again raises its concerns about the family home exemption.
For our part, Downsizing.com.au believes that forcing Australians out of the family home, by removing the pension exemption which covers this home, is simply unfair.
However, Downsizing.com.au does believe there needs to be government incentives in place to make it easier for retirees to move out of the family home, without losing access to the pension.
On 12 July, our co-CEO and co-founder Amanda Graham told YourLifeChoices that Australia did have a problem with retirees staying in their family home for too long, because they were worried about losing the pension if they sold up and moved out.
Ms Graham said this was leading to an under-utilisation of homes, along with retirees staying in homes that were no longer suitable for their needs. A related risk was that retirees who stayed at home may become socially-isolated, Ms Graham said.
Ms Graham said however that removing the family home exemption from the pension assets test was a cruel and unfair way to solve the above problems and would be likely to make many homeowners ineligible to continue to receive the pension (and therefore require them to sell their homes to fund their retirement).
“It represents a stick approach to solving the above problem - when what we need is a carrot approach," Ms Graham said.
“We think the government needs to re-investigate exempting family home sale proceeds from the pension assets test, to encourage seniors to move into more suitable accommodation and to free up existing homes for younger families.”
It should also be noted that the assets test is currently around $200,000 higher for people who don’t own their home, compared to those who do.
By Mark Skelsey, News Editor of Downsizing.com.au