Family home in the aged pension asset test?
The Australian Chamber of Commerce and Industry (ACCI) made a statement recently that the family home or the principal place of residence should be included in the aged pension’s asset test.
ACCI said that workers retiring at the age 65 with a debt-free family home valued over $450,000 should not be eligible for a full or part pension for the first five years. The controversial recommendation was included in the ACCI’s pre-budget submission, which was released recently. According to ACCI, the government should make budget cuts now. Although it would result in short-term pain, their opinion was that would be necessary for long-term budget sustainability.
Retirees with assets exceeding the threshold would be given access to an interest-free pension loan. The loan would be borrowed against the value of the assets, very much like a reverse mortgage. As with all reverse mortgages, this pension loan would be repaid when the borrower dies, moves into aged care, or when the property is sold.
This approach would allow retirees to afford retirement and stay in their family homes, according to the ACCI. Their submission to include the family home in the aged pension asset test would likely be rejected by the Government, as based on their current feedback its implementation would likely create anger and confusion among retirees.
Other recommendations by ACCI included gradually lifting the retirement age to 70 by 2035, and reducing government spending to 25% of the GDP.
Ultimately, the ACCI submission was a bitter medicine for income sustainability for retirees. In my view this, on top of the recent aged pension cuts, would be too much of a burden for incoming retirees.
The family home is currently exempted in the aged pension asset test. In January 2017, the new threshold for the aged pension asset test took effect. Around 300,000 of Australians pensioners have been affected by the change. At the time of writing, full pensioner homeowners can own up to $250,000 assets if they are single and up to $375,000 for couples. Part pensioner homeowners can own up to $547,000 if they are single and $823,000 for couples before their entitlements are affected.
Currently, Reverse Mortgage loans remain the most viable option for seniors who need to access home equity without selling the property. At Heartland, we don’t see this situation changing any time soon.
Information provided is accurate as at 01 March 2017 and may change from time to time