The third in our series on the Government’s Retirement Income Review
Home ownership gives retirees a big leg up in retirement, according to the government’s recently released Retirement Income Review. Retiree households who own their home face lower housing costs. On average housing costs are just over 5% of disposable income for couple homeowners vs about a quarter of disposable income for renter couples. And those owning their home are less likely to face financial distress than retirees who rent. Almost one-quarter of retirees who rent privately are in “financial stress” vs only 5% or so of homeowner retirees.
Does the age pension system adequately address these issues?
One of the key focuses of the government’s study of the retirement income system was equity: Is it fair?
For many people that probably depends on your perspective – Do you own your home or are you a renter? Let’s start by looking at some of the advantages of home ownership:
- The value of the house isn’t included in the assets test. So, retirees can own a very valuable property and if their other assets are below the assets test, they still can qualify for the Age Pension.
- Home owners spend a significantly lower portion of their income on housing than renters. 5% versus 25% for renters.
- The tax system favours housing by exempting the family home from capital gains tax.
It isn’t black and white however as the Age Pension system has some additional benefits to help renters. These include:
- First, the assets test limits for renters are more generous than for homeowners. For example, a single renter can have assets of $482,500 vs $268,000 for the single homeowner ($616,000 and $401,500 for the couple renter vs homeowner respectively) and still receive the maximum Age Pension. You’d think that would be a significant benefit but it turns out most renters can’t take advantage of that as only a very small portion of non-homeowners have assets between the two levels.
- Second, the Commonwealth Rental Assistance is designed to help narrow the gap. It’s a supplement available to retirees who are renting and is means tested with the Age Pension. The payment is based on 75% of rent paid but capped at $139.60 per fortnight for singles. This is terrific in theory but as the Retirement Income Review points out:
- Market rents in some areas significantly exceed these caps.
- The maximum value of Commonwealth Rent Assistance has not kept pace with market rents, especially for low-income renters.
Home owners often feel they shouldn’t be penalised for working hard to pay off their mortgage and some begrudge the additional assistance given to renters. On the other hand, even with that assistance, the Review concludes there is no doubt that renters find it much harder to make ends meet on the Age Pension. Fortunately, for Australia overall, home ownership remains very high for retirees – about 76% of those over 65. But that doesn’t help the renters.
So what do you think – Should more be done to help renters living on the Age Pension? Tell us what you think by commenting below.