Actuaries Institute Urges Better Equity Release
22 March 2016
In a positive contribution to the national debate around senior's housing and retirement incomes, the Actuaries Institute recently released an important report called Unlocking Housing Wealth.
You can find the report.
The report promotes some very interesting ideas around how the vast sums of home equity owned by seniors may be better deployed to help fund retirement living.
It makes some comments around Reverse Mortgages which I'll cover shortly, but perhaps the most noteworthy aspect relates to proposed changes in public policy across both state and federal governments could deliver substantial outcomes for the real economy.
The report notes that as the family home is currently not included in the pension assets test, many retirees are reluctant to sell as their pension payment may be reduced.
The Actuaries Institute suggests that equity release would be more appealing if the federal government exempted a proportion of the proceeds from selling the family home from the assets test. The professional body said that state governments should also provide stamp duty relief to retirees who are downsizing or releasing home equity. Furthermore, they propose that any exemptions to stamp duty and means testing on the equity released from downsizing should also apply to financial products such as Reverse Mortgages.
The institute however conceded that this would likely add to the pension bill for the government, but that it could eventually unlock the property supply and allow struggling retirees to maintain their standard of living.
These are new ideas worthy of further discussion. I support anything that offers more choice and flexibility to Australian seniors.
Indeed in a regulatory environment that currently makes downsizing so difficult, it's precisely these qualities that make Reverse Mortgages so appealing for an increasing number of seniors. Releasing equity through a home sale IS a cumbersome process that is very often financially disadvantageous to pensioners and retirees. Reverse Mortgage by comparison, can be a much simpler process that often avoids the negative impacts on aged pension and the emotional tumult of a home sale.
It would be great to see some of these ideas from the Actuaries Institute eventually legislated, but given the past record of governments to innovate in this area it may still be quite some time before we see any real change.