The drive to encourage older Australians out of their ‘too large’ homes in order to free up housing for younger families has passed another milestone.
Legislation to again reduce the eligible age to make downsizer contributions has passed both houses of parliament and is awaiting royal assent. The legislation changes the eligible age from 60 to 55. It was originally 65.
The age change was promised by both major parties ahead of the May federal election and the change is set to take effect from 1 January 2023.
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Almost 50,000 people have taken advantage of the program and it’s estimated there are about 1.3 million empty nesters who might now be enticed to participate.
Your views on downsizing
But whether the latest change will be embraced is doubtful, based on the results of YourLifeChoices 2022 Older Australian Insights Survey, which had 6148 respondents.
The survey found that downsizing was still not popular, with 56 per cent saying they would not consider the option. Twenty-three per cent were unsure and just 20 per cent said they would consider the move.
The figure was an improvement on the 2021 survey when 58 per cent said they would not consider downsizing.
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The latest survey also asked if the updated government incentives to downsize had changed their view. Overwhelmingly, 70 per cent answered no, 24 per cent were unsure and just 6 per cent said yes.
How the scheme works
The downsizer scheme allows eligible property owners to make a one-off post-tax contribution to their super of up to $300,000 when they sell their home. Both members of a couple can each make a contribution.
The deposit does not count towards the non-concessional super contribution cap.
In addition to the age change, from 1 January, the existing 12-month asset test exemption for sale proceeds that are intended to be used for a new home will be extended to 24 months.
Importantly for age pensioners, deemed income on the exempt proceeds will be calculated using only the lower deeming rate, which is 0.25 per cent.
What the minister says
Social services minister Amanda Rishworth said it was an important piece of legislation to help pensioners downsize.
The recent changes would provide recipients with more time to purchase, build, rebuild, repair or renovate a new home without the stress of their pension payments being affected, she said.
“We think everyone would prefer to see properties freed up for growing Australian families, rather than seeing pensioners feeling financially stuck in properties they aren’t fully utilising.
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“High transactional costs is one of the reasons older Australians are reluctant to sell and are holding on to their properties, for far longer than is ideal for their circumstances.
“More than 8000 income support recipients took advantage of the existing 12-month asset test exemption last year.”
Why you should seek financial advice
Personal financial expert Noel Whittaker warns that anyone considering downsizing should be sure to seek professional financial advice to ensure the strategy works well for them.
“Anybody in receipt of Centrelink benefits [should be aware] that these downsizer contributions may count towards the assets test and the income test, which obviously determines eligibility for the Age Pension and other benefits as well.
“In essence, when you downsize, you are moving money out of an exempt asset – the family home – and putting part of that into a super fund where the money will cease to be exempt.”
He says a downsizer contribution may also have issues for aged care costs as it will increase a person’s means and therefore can increase aged-care and home-care fees.
“I can’t stress enough the importance of getting expert advice if you are downsizing, or entering aged care,” he says.
Do the latest changes affect your view about downsizing? What more needs to be done? Why not share your thoughts in the comments section below?