A bold initiative from the Actuaries Institute proposes that the family home should now be included in the assets test. It’s far from the first time this policy has been suggested – and it probably won’t be the last. But is it an idea worth considering? A detailed discussion paper on this topic was released by the Actuaries Institute last week. Authored by Andrew Boal, partner at Deloittes, the ‘dialogue’ paper outlines the primary role the house can and will play in most peoples’ retirements.
The importance of the home and potential use of equity in the home to boost retirement income is something Retirement Essentials has reported on for some time now. The home is one of the five main pillars of retirement funding, alongside the Age Pension, Superannuation, work income and private savings. Using home equity as a source of funding has been increasingly supported by government policy, through legislation including more widely available downsizer contributions and the government’s own Household Equity Access Scheme (HEAS) which has been expanded in recent budgets.
The uptake of HEAS has escalated, particularly since the first of the 13 most recent Reserve Bank interest rate rises in May 2022. As we’ve regularly reported, the proportion of retirees who will enter retirement with mortgage debt is increasing rapidly, with more than half 55-59-year-olds facing this challenge.
Why is the Actuaries Institute encouraging further changes?
Whilst there are many calls for changes to retirement income policy, quite a lot come from vested interests wanting rule changes to suit their own product or service offering. The Actuaries Institute is a not-for-profit association which has more than 5000 actuarial members who measure risk and financial security, particularly with regard to insurance and retirement income streams. They have deep expertise in understanding retirement income risk and the factors that affect it. The More Than Just a Roof: Changing the Narrative on the Role of the Home report was authored by Deloitte’s Andrew Boal on behalf of the institute with the express desire to make it more acceptable to access and spend part of the equity that has been built up in the home.
What is being recommended?
The report claims that many Australian retirees are yet to fully benefit from compulsory super. Also that many enter retirement asset rich (due to owning the family home) but cash poor. The report maintains that policy needs to change to incentivise retirees to fund retirement by accessing wealth in their homes. By way of background, the report asserts that:
- While more than 80% of people currently aged 65 to 74 live in their own home, many of these ‘asset-rich, cash-poor’ retirees are living more frugally than they need to.
- It will take another decade or two before most working Australians will have had compulsory superannuation contributions of 9% or more throughout their working lives.
- More than three million Australians are entering the retirement phase in the next decade, a phase that will likely be longer than that of previous generations – and thus requiring greater funds.
Suggested policy changes
More Than Just a Roof also suggests several key policy reforms governments could undertake including:
• Removing or refunding stamp duty for over 55s who downsize their home
• Extending access to downsizer contributions to superannuation to also include amounts released through an equity release scheme, such as reverse mortgages
• Relaxing the Age Pension assets test for part of the value of equity released from the family home when it is sold (e.g., $300,000 per person/ $600,000 for couples)
• Providing Age Pension assets test relief on money accessed through home equity release schemes, such as reverse mortgages, up to the same cumulative limits
• Gradually including part of the value of the family home, above a reasonable threshold, in the Age Pension assets test.
Including the family home in the assets test
The recommendation is to include the value of family homes above $2.1 million in Age Pension assets testing. This initiative was linked back to a recommendation from the Henry Tax Review (2010) that the value of family homes above $1.2 million owned by retirees should be included in asset testing. According to the Actuaries Institute indexing (at 4 per cent per annum), a threshold of $2.1 million would therefore be appropriate today. The Institute also noted that this amount might vary by region or postcode.
Whilst including homes of a certain value in the Age Pension assets test may sound politically very difficult, the Actuaries Institute states that part of its motivation is to ‘change the narrative around retirement funding, ‘so that it is more acceptable to access and spend part of the equity that has been built up in the home and to address the financial disincentives that prevent people from doing so.’ It claims that about 10,000 Age Pension recipients would be affected by the inclusion of properties valued at $2.1 million or more.
Until now, the family home has been seen as untouchable when it comes to Age Pension assets. But with more and more Australians reaching retirement with mortgage debt, the assumption that most retirees fully own their own homes is becoming a false one. For those who do have home equity, using part of it to top up retirement income could present a reasonable strategy.
What do you think?
Should the family home be kept out of the Age Pension asset test?
Or should homes above a certain value be viewed differently?
Would you be happy to access equity in your home?
If you would like to learn more about the benefits of repaying or maintaining your mortgage in retirement, the Your Home and Your Mortgage consultation will help you explore your options.
Yes I think it should be, I live in a modest home and we are self funded retirees. If we had wanted a waterfront or close to waterfront property we could have bought one and eventually qualified for a pension. However we prefer to live in as I say a modest dwelling and live off our superannuation funds.
There are two problems.
1. I would think most people who live in a home valued above $2.1 million would have sufficient income.
2. The old chestnut of having to continue upgrade the $2.1 million limit to allow for inflation.
Gordon Bedford : I bought my house for approx $50,000 and many other did as well in that era. It is now valued according to the market in excess of $2 million. Does that mean I have a lot of money, – of course NOT, Leave me alone to live out my life in my home surrounded by my family, friends and support.
Forcing me to sell my home just to get me OFF the PENSION is a VERY SICK proposal.
Well said Neil, leave our homes alone
I agree
Yes I agree as we were very lucky where we chose to purchase
Way back when a wage was under $100. However the home prices went up and I got old and now punished because of its location and supposed value.
Once again the parasites are ‘at work’ beavering away at how to penalise the older generations while charging thie exorbitant ‘consulting fees’. No, just because the market value of my modest house has gone up substantially & [un]Real Estate agents are constantly pestering me; I want to live in my HOME with all the community, etc. here where I am comfortable.
I couldn’t agree more. My situation is similar to yours. My Assets in total are $1.7 million but my income including a small UK pension which is also used to calculate my $200 a fortnight centrelink pension is $55,000 PA.NET. as at 30-6-2024.
No way, Again attempting to penalise you for getting ahead and making a better life.
You have got to be kidding: We don’t set the value of our homes but we choose where we want to live and the fact the house can increase in value over time should not penalise me from receiving a pension.OR force me to sell and move away from my neighbourhood / friends/ family etc.
My financial situation is what determines receiving a pension, not the house I live in.
Have you not heard about a UNIVERSAL PENSION.
totally disagree with this concept. Why does the government continue to punish retirees by taking aim at their family home. We have paid and paid and paid taxes forever (in my case 52 years) and own my own home (hard work, saving saving, living frugally – can’t afford to buy meat for more than 4 years, live on bread, soup and the cheapest meals). Now going to be punished with more tax).
If this concept is legislated I WILL LOSE MY HOME AND LIVE ON THE STREETS.
“Also that many enter retirement asset rich (due to owning the family home) but cash poor” as stated on the report is not anyone’s business to correct the situation. it’s up to the people involved to make the decision to correct their living standards by down sizing or using the equity to boost their retirement funding. Instead peanalising retirees, they should look at how other countriesare doing this – E.g. NZ is our neighbour, it would give them a good idea by looking at their process.
No, your home is your home, wether you have lived in it for 2 to 30 years, I realise that some homes are worth a lot but people have memories in these homes that can’t be replaced and do you really want to evict, force people to sell their homes.
The family home should be kept out of the Age Pension assets test.
Reverse mortgages can be a killer for retired people. The product is designed to make money for the financial institutions.
Interest is compounding on the loan. You end up paying (accumulating debt) of interest being charged on interest. Your equity in your home diminishes rapidly.
However, the cost of moving into an aged care facility in future is increasing.
I have witnessed a situation where the home owner could not have afforded to move into an appropriate aged care facility when he sold his home, if he had a large reverse mortgage many years ago.
The cost of downsizing is one of the major factors in the decision process and the most significant cost is stamp duty on the new purchase.
Some form of substantial concession on stamp duty would be a great incentive.
Reverse mortgage will allow homeowners access the equity in their home.
Yes, but unfortunately if they spend all that money, they still have to continue to pay regular mortgage payments.
My parents did this. And eventually were forced to sell as they couldn’t afford the mortgage payments anymore on the pension. They downsized, but still with a (much smaller) mortgage. Looking back it was a terrible decision. I didn’t not think they’d live as little by as they are – thinking it wouldn’t be a problem. Imagine being in your 90’s and still paying a mortgage. Please people – do not do a reverse mortgage!!
I think Harold works as a banker and therefore reverse mortgage or whatever form it is benefits only the bank and financial institution, not the working class people. Shame to suggest this stupid idea to anyone let alone retirees.
If they are going to do that, they need to provide deductions for the MASSIVE costs of maintaining housing stock in Australia. Tradies charging $160 per hour plus the incredible costs of the materials. Homeowners are footing that bill on behalf of the need to keep housing stock in good condition. Many people have no children so will be passing that house back into the market – and they have spent an enormous amount to maintain it. Oh and then there is this levy on land and the rateable value of your house – which is used to calculate what you pay for your water supply !!! Why ? Why does the rateable value of your house mean the cost of getting water to your house is higher? It doesn’t. It is ** yet another ** hidden tax that those who pay to maintain housing stock in Australia, pay.
We purchased our home 32 years ago. We worked hard went without to pay off the mortgage. Once that was done we planned for our retirement years again working hard and going without. Our car is now 24 years old and is starting to want its own retirement.
I think if the family home was to be included as an asset there would be more pensioners do it even tougher than they are today. Possibly more homeless as well.
Anyone who wants/feels the need to draw on the equity of their homes can do so today without the need of homes being asset tested. Unless they have a mortgage and could possibly not qualify. Drawing on the equity of your home is basically getting a mortgage when you are retired. Without any means of being able to pay the money back. Should you need to sell your home in order to afford a retirement home in the future your loan would need to be paid back first, leaving you possibly without enough funds to afford a retirement home.
This trend of drawing on the equity of your home could be very dangerous especially if not done correctly. There are many morally corrupt people wanting to take your money on a daily basis, for their own financial gain at your expense. (Like the current “Lifestyle Village” ripoff. This would be just another way of being caught out. In this life you get nothing for nothing, and there is always someone wanting to take what little you have. The government included. Otherwise we would have a Universal Pension system.
Absolutely not. Bring back the universal age pension for all regardless of assets – probably cheaper than maintaining Centrelink age pensions and bums on seats! We could all choose to live without trying to get ahead in life – all live in public housing, not paying tax etc. but we chose to work hard to provide for ourselves/families. Leave us alone 🙁
I agree – New Zealand has universal pensions at a big saving in administration costs. The Pension is taxable income, so those with a taxable income stream will pay tax on the pension.
Absolutely. A universal pension would save administration costs.
All for it.
What in Gods name is wrong with this country we’re supposed to be the lucky country with enough mineral assets to export and make billions off for our 26 million inhabitants and growing.
Yet you get ahead by working hard all of your life and saving and all our governments of the day want to do is to punish you for it.
I’m 73 can’t get a dollars pension and yet if I lived in New Zealand and owned a couple of houses I would receive a full pension because I’m over 65.
What the hell is going on and where is it fair when a politician can retire with 6 properties and get their government pension no questions asked straight away reeks of discrimination if you ask me.
I don’t think it is unreasonable to include the family home as an asset. We are living longer and the pool of tax payers is shrinking. However I do recognise that sitting in a house worth several million isn’t going to pay for groceries so feel that either access to equity is made easier or any pension paid is taken from the estate.
Anyone who thinks that your primary home, what ever it’s worth, should be included just does not understand living in a free society.
If you have accrued a valuable asset, you will have paid large amounts of taxes in your life time on the money earned to pay for your house.
Just because the government can’t manage their income and expenditure, house owners should not be penalised.
If you are entitled to a pension , your disposable income and all other assets are means tested ( such as a second holiday home)
That’s fare if they exceed the limits there is no aged pension. In that case you may need to convert some to cash to live until such time as your assets fall below the maximum, then you can receive part pension
If you have no home or still paying it off you may be entitled to rent assistance and the full pension benefits including free health care which is very important.
Fully Support the notion the government must provide welfare
But not at the cost of the retired generation, they have contributed during their working life and it’s now you to younger people to pay forward via Taxes…..
Using Centrelink’s Home Equity Access Scheme for me is a no brainer. With a house worth over $1.6M drawing down on some of it as part of a reverse mortgage, we will get nowhere near using it all up in the next 15- 20 years. There are limits as to how much you can draw down.
So the bottom line using rounded up figures for our income is as follows:
Full pension – $44k
HEAS – $22K
Minmum drawdown on $400K of super in pension phase is 5% so $20k
Total Income is $86K. Even if you didn’t have any super you can get $66K by using a bit of your house. That can make a huge difference if you are struggling.
As an added bounus I look at $66k of that income as being indexed.
Those that hear the word reverse mortgage and put up the shutters should rethink their retirement strategy.
Simple answer: NO
the Actuaries Institute should pull its head in –instead of being a pseudo tool of the government it should leave private ownership of land alone -we don’t want more taxes in this country and effectively this is what this will lead to
instead they should look at why the government pulled out of so much public housing —if the Government was more invested this would be a regulation in itself on rent and house prices and supply
there is no need for the Actuaries Institute to decide how individuals spend their money that taxes have been paid and how it should be further taxed
so two words involving sex and travel
I am absolutely opposed to the family home being considered as an asset when claiming a part age pension. I am 76 years old. I have no intention of selling or reverse mortgaging. Indeed I paid taxes all my life. I believe I should be entitled to the ful pension. I have a partly mortgaged rental property currently tenanted by a familly with 2 chidren. I could sell or charge $700 per week. I only get $450 rent. I couldn’t in conscience up the rent. It would make my tenants homeless. Their
demise was caused by covid. They were close to Bankruptcy. I lent them $50000 to stave this off. They are paying back what they can afford. The money I gave them is counted as a loan by centrelink despite the fact I am giving a public service. I have had no personal benefit from the taxpayer. Why should I not get back the full pension. I make a loss on the rental after all the expenses are paid. Two little girls have the benefit of a nice home in a good area. They will be good citizens in the future. I could not sleep at night if they ended up in substandard accommodation.
Oh my God.
When will people stop thinking that the tax you pay is your own private savings account managed by the government, that you are entitled to get back when you retire?
A pension should be for those unfortunate enough to need help in their retirement, not for people who own their own home worth Multi Millions.
I like this idea, but would put a larger limit on the home value, say $3M indexed.
No-one can say if you currently live in a home worth $3M+ that you should be receiving a taxpayer funded FULL pension. What if your house is worth $5M, do you really still think you should be entitled to a FULL pension?
Maybe a part pension from $3M – $5M. Over that amount it would be hard to argue that someone deserves a pension.
I hate it when I hear people say they can’t afford to buy meat, BUT they own a home.
A Reverse Mortgage or similar government scheme, can be a great option to top-up a pension. People have to remember that if the house rises by say 3%-5%pa, drawing say $5K-$10Kpa from a reverse mortgage so you can live more comfortably will never put you in financial difficulty.
NO repayments are required on a Reverse Mortgage until the home is sold.
But don’t worry, the changes proposed will never happen, because most people are greedy and would vote out any party who even proposed this sort of change.