Australian downsizers should be allowed to boost their retirement finances from their family home sale, without losing access to the pension, according to the association representing Australia’s seniors housing industry.
The Retirement Living Council has lodged a submission to the Australian Government’s Retirement Income Review consultation paper.
The submission says the current pension means test acts to “penalise people who move into a smaller home, even when this home is designed to extend physical independence and alleviate social isolation.”
This is because, under the means test, single pensioners have their pension reduced by $3 per fortnight for every $1,000 in personal assets they hold (including savings and superannuation) over the $263,250 threshold.
This means that, if a pensioner with assets close to the threshold generates a $100,000 cash equity release due to downsizing, the pensioner’s pension payments would be cut by $7,800 per year.
Consequently, the Retirement Living Council has suggested that pensioners should be able to collect anywhere between $100,000 to $200,000 when they downsize, and have this amount excluded from the pension assets threshold.
This would allow people to sell their family home - and move into a retirement-specific and less expensive home - without having their pension reduced.
Modelling undertaken by the Retirement Living Council indicates that this policy may actually save the government money.
This modelling shows that the extra government funding required to retain the full pension for downsizers would be offset by reduced government expenditure to support Australians in residential aged care.
This prediction is based on research by specialist aged care consulting firm Grant Thornton in 2014, which found that people who live in retirement villages enter residential aged care on average five years later than the general population.
The Retirement Living Council says that allowing such equity releases will help older Australians to more easily access more manageable and safer homes, and at the same time allow younger families to access larger family homes.
Pension means test a policy battleground
The pension means test is set to be a policy battleground during the government’s retirement incomes review.
Seniors advocacy group National Seniors has called for the means test to be scrapped altogether, to allow pensioners to downsize and continue to work, without being penalised.
Professional services company Mercer has also called for the test to be scrapped, saying that it was actually encouraging people to needlessly spend their savings to avoid accumulating too much money.
“The assets test, in particular, is very tough and provides an incentive for people to give away some of their money, even add it to their family home, an extra room to the family home, because that will enable them to get a higher Age Pension - even though they may not need that extra room,” said Mercer Australia Senior Partner, David Knox.
However, the Centre for Excellence in Population Ageing Research has argued that the means test should be kept.
“We believe that the Australian retirement income system exhibits a high degree of equity, mainly because the age pension is means tested and because existing caps limit excessive tax-advantaged transfers into super,” the submission says.
“This means that wealthier retirees do not receive a public pension, which distinguishes the Australian structure from most others around the world.”