The Property Council of Australia has welcomed the Australian Government’s commitment to reduce the adverse financial impact on pensioners looking to “right-size” as a “win-win” for older homeowners, governments and young families.
Executive Director of Retirement Living at the Property Council of Australia, Ben Myers, said incentivising older Australians to move into homes that require less maintenance and are designed to help people live independently for longer made sense.
Mr Myers said countless government reports and reviews over the last decade showed most older Australians’ wealth was locked up in the family home, so finding better ways to encourage them to unlock the equity in their home – and remove tax disincentives – was a good start in helping them help themselves.
“Incentivising older Australians to unlock their home equity and right-size into more suitable housing options, especially purpose-built age-friendly communities, is a wise move by government,” Mr Myers said. “Encouraging older Australians to right-size, not only contributes to healthier ageing, it’s also one of the smartest and fastest ways a government can boost much needed housing supply for families.”
The Government last week introduced the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 which will give pensioners an additional 12-month asset test exemption on their home sale.
Minister for Social Services Amanda Rishworth (pictured above) said the bill would benefit thousands of pensioners and other recipients each year.
“We don’t want people putting off downsizing to a more suitable home because they are concerned about the impact it could have on their payment rate and overall income,” Minister Rishworth said.
“These changes will give pensioners more flexibility to find a suitable new home and it will hopefully free up larger housing stock for younger families who need it.”
Currently, when a pensioner (or other eligible income support recipient) intends to use the proceeds from selling their home to purchase or build another home, those proceeds are exempt from the social security assets test for up to 12 months.
An additional 12-month extension is available in extenuating circumstances – such as building delays due to a natural disaster.
The majority of these proceeds are usually deemed to earn income at the upper deeming rate, currently 2.25 per cent per annum. This can have a significant impact on a person’s pension or other payment rate.
The legislation to be tabled will extend the assets test exemption to 24 months for principal home sale proceeds. The additional 12-month extension will still be available in extenuating circumstances.
During the exemption period, only the lower deeming rate will apply to these sale proceeds in the income test. The lower deeming rate is currently 0.25 per cent per annum.
In 2015, the Productivity Commission ‘Housing Decisions for Older Australians’ report found the vast majority (ie, over 90 per cent) of Age Pension recipients that owned a house could leverage the equity in their home to achieve a “modest retirement standard” for the rest of their lives.
It found “a general lack of affordable downsizing options for older Australians, due in large part to the red tape and inconsistencies within state and territory land planning regimes”.
Mr Myers said then – as now – there was a need for broader action on housing supply, especially to encourage the supply of purpose-built age-friendly communities, to ensure Australians have affordable and accessible choices.
“State and local governments are making it very hard to finance and develop new retirement communities in suburbs and regions across Australia,” he said.
“Unless Australia is able to better provide the housing supply and choice that our ageing population needs, affordability and accessibility will be an increasingly dire social and economic issue.”
Mr Myers said industry research showed retirement village residents were not only happier, healthier and more actively engaged in their communities, but this also meant there were significant government savings because retirement living residents had fewer GP visits, significantly less hospital presentations and reduced length of stay (ie, reduced falls / depression) and delayed entry into residential aged care.
This is consistent with the Australian Government Advisory Panel on the Economic Potential of Senior Australians (2011) which found appropriate housing underpins the wellbeing of older Australians and reduces health and pension costs by: facilitating social participation; reducing demand on health services including mental health services; enabling effective delivery of community aged care; and using housing equity to supplement retirement incomes and help pay for services.