Age Pension: time to include the family home

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The exemption of the family home from the Age Pension means test is one of the most emotionally charged elements of Australia’s retirement system. The mere suggestion that the value of homes be included in Age Pension eligibility tests draws the ire of many. 

Yet, reluctance to touch home equity is harming taxpayers, pensioners who do not own their home, and ultimately home-owning pensioners themselves.

Three in four pensioners own their own home, and almost all of them are free of a mortgage. For most pensioners, this represents the vast majority of their net worth. Indeed the combined value of pensioner home equity exceeds $700 billion, far outstripping any other form of savings.

Yet just one per cent of retirees use these savings to boost their living standards through a reverse mortgage. Nor do many seek to downsize. In fact most pensioners hold onto their home equity until they go into aged care, or until they pass those assets on to their children.

Instead they rely on taxpayer support — through the Age Pension — for the majority of their income.

Around a quarter of all pensioners have a net worth of $1 million or more and five per cent of pensioners are in the top wealth bracket. Pensioners with no other income, and less than $10,000 in assets, are sharing payments with those worth millions.

Yet many of those pensioners with million dollar homes are still struggling to make ends meet. They can’t afford to maintain their homes and lifestyles while pensioners a couple of suburbs away struggle with rental payments and daily living expenses.

The protected position of the family home, combined with a strong sense of the importance of home ownership, has led retirees to massively overinvest in housing assets, to the detriment of their standard of living.

It is wrong to expect that taxpayers, particularly those who are locked out of the housing market, will hand over more and more money to subsidise living standards (and bequests) for retirees. Projections that the cost of future pensions may exceed workers’ contributions to their own retirement, together with a rapidly ageing population, reflects the sobering reality that the age pension is unsustainable.

Three interlocking reforms will resolve this problem.

First, the family home should be included in the Age Pension assets test. The Age Pension asset test needs to properly reflect how pensioners hold their savings, and the simple fact is that pensioners with substantial home equity can and should support themselves.

The second step is to assist in unlocking that home equity by creating a government-backed reverse mortgage scheme. With a government guarantee, banks and superannuation funds could offer low-rate, low-fee, reverse mortgages that provide a regular income stream just like the Age Pension.

The last reform, which dovetails with the two previous reforms, is to deem reverse mortgage income in the Age Pension income test. This will encourage pensioners to take out reverse mortgages that will boost income, and allow pensions to automatically adjust if reverse mortgage income falls.

These reforms not only save taxpayers almost $15 billion every year, but mean that 98 per cent of pensioners would see a boost in their income of nearly $6000 on average – a significant rise for those wholly reliant on the Age Pension. These reforms could also fund a substantial boost in the Age Pension for the poorest pensioners, as well as lifting rent assistance for non-homeowners.

There are political, cultural and social issues to overcome when talking about an emotive topic such as the family home. However, refusing to even consider pension reform is entrenching unfairness, increasing government spending and lowering pensioner living standards. Unlocking home equity is the big-bang reform this government needs.

Simon Cowan is Research Manager at The Centre for Independent Studies and the author of several reports on the retirement system including The Myths of the Generational Bargain and The Age Old Problem of Old Age: Fixing the Pension.




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Written by Simon Cowan

238 Comments

Total Comments: 238
  1. 0
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    I worked all my life and paid my taxes, worked hard to buy a family home instead of spending madly on holidays and other extras and now you want me to pay again? House values rise and fall over time and what value do you put on it? Depending on where it is situated the same house can have a different value of thousands of dollars. By choice many people preferred to rent and now when they retire they have no home and feel we that saved and budgeted should now be made to pay again? If this comes in I will sell my house, go for overseas holidays and spend the money and then will also become a renter with less assets and will cost the govt. more in rental assistance etc. Leave our homes alone!

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      Well said. My sentiments exactly.

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      p.s. BUZZ OFF Simon and investigate some “politician leaners” instead of harassing Aged Pensioners. Sort out some of their finances, and find out why they can collect their pensions when they leave parliament instead of waiting to reach age 67, or in the future, age 70. Absolute disgrace. The government ‘bean counters’ are hoping we ‘drop off the twig’ before we reach aged pension age. Joe Hockey referred to us as “leaners” on the public purse. He collected a nice pension from Australian taxpayers….
      o waiting until age 67 for him…..and another government well-paying job with all its lurks & perks to boot. Go and contemplate some other solution that doesn’t involve an aged pensioner’s home. Crikey, we’ve struggled all our lives going to work everyday to pay off our house….let us enjoy living there until we leave it for the next life.

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      Green Tick 🙂

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      It’s a logical fallacy to use the pollie’s pensions in an argument over welfare pensions. The pollie’s pensions are a rort that should be discontinued; politicians should earn pensions as any other Joe and access the same as any other Joe.

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      This piece sounds more like an advertisement from the banking sector wanting to cash in on reverse mortgages than anything else.

      I find it galling to reap this sort of crap from somebody purporting to be an ‘expert’. Simon needs to comprehend that the FAMILY HOME and a PENSION are mutually exclusive. What that means Simon is that they are not related and that one does not determine the other.

      Your photo indicates to me that you are a genYer. That should say it all…but I would have thought even illogically thinking genYs with their distorted view of the world might like to be left an inheritance from their parents. This bright idea will end that one. Stupid!

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      Come on bobbalinda, of course we should be reverse mortgaging our homes, & using up all we have worked for. How is the left going to raise the money to give more to the no hoper, if they don’t rip it off the productive folk, who put the effort into preparing for their retirement in the most logical way.

      We even paid a percentage of out taxes at one stage, in a similar way to suppuration today, to the government to fund our pension. How can you not want to give it to the yabbo, or use it so the disabled can drive a better car than you can afford?

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      That’s right Hasbeen. Give everything to the rich and leave average WORKERS on the street penniless.
      Your view is why 0.1% of Americans own 90% of everything and why coalition governments have for years tried to create the same class system in Australia.
      If you want to talk about waste then look at what our Tax Haven user PM did to the NBN: ruined the model and now it costs more. And let’s not forget about the Royal Commission into an election coming. Total waste. And then there is the $8 billion a year this government threw away by repealing the Carbon Tax…which did not stop heaps of mines closing down AFTER THAT in Queensland.
      I’ll support you on routing bludgers. I am sick of it but this sore comes from both sides of politics.

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      What the …… ? Did you people read the same article as I just read? It seems perfectly logical and eminently sensible to me to include the family home as part of one’s assets. Why should someone living in a $1 or $2 million home not use part of this asset to support themselves rather than expecting the tax payers of today to carry them? I will once again ask the question – what is the difference between someone with a $2 million home and $500,000 in superannuation or someone with a $500,000 home and $2 million in superannuation? They both have the same amount in assets and should be treated the same when it comes to receiving the pension. People who own an expensive home (regardless of how that home came to be “expensive) should look after themselves in retirement rather than expecting someone else to do it so that they can leave a large windfall to their children. Also why restrict yourself to a meager existence when you could have a better standard of living by utilizing the value of your asset to provide for yourself. It just doesn’t make sense! Also with the increase of the number of people reaching their 60s get used to the idea. It’s going to come as it is the only way either government can sustain the old age pension payout which has already reached something like $45 billion!

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      Have to agree with the GreyViper on this one! If you own a 2 million dollar house then damned if you need the age pension to live. Reverse mortgage if you don’t want to downsize. I speak from the perspective of one who is excluded from the pension due to assets, and am quite happy with this. The age pension is not a right, it is intended for those who have never been in the fortunate position to be able to provide for themselves.

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      Totally agree with GreyViper and Jenny. Why should the taxpayers of this country pay for pensions for people who have $2 million dollar homes plus.
      This will free up more money to go to those who deserve helping.
      The pension is “not” an automatic right.

    • 0
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      Nice sentiment Radish, but I doubt any money saved will find its way to the disadvantaged, the government is more likely to use it to reduce taxes for those needy people in the higher tax brackets. And if you reach retirement age and meet the requirements YES the pension is an automatic right.

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      ex PS, you may think rights and entitlements are interchangeable, but they are not the same. It is splitting hairs but the pension is not a right. Technically it is a conditional entitlement.

      A right can be acted on by individuals without the assistance of government and without forcibly interfering with other individuals.

      Entitlements, on the other hand, cannot be fulfilled except through specific government actions which require forcible interference with others.

      Either way it is far from automatic – firstly, one has to apply for a pension and then satisfy the eligibility requirements in order to receive it, hence it is an entitlement. You can read more on our rights at https://www.humanrights.gov.au/common-law-rights-human-rights-scrutiny-and-rule-law. You will not find pensions or income support mentioned.

  2. 0
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    Simon Cowen has demonstrated total disrespect for retirees and gross selfishness on behalf of well-to-do taxpayers whose greed knows no bounds.

    Personally, I support including the family home in a much more generous assets test, simply because excluding it is unfair to those who choose to invest in other assets (particularly if those other assets fail to return well and are hard to sell) and because excluding it encourages over-investment in housing which distorts the housing market. BUT, and there’s a massive BUT…. people’s RIGHT to save for later-life goals and to leave something to their children SHOULD be respected. And there needs to be respect for the fact that today’s retirees who have little or no super PAID for their pensions through a tax plan, and it isn’t their fault that money was stolen by government.

    Scrub the compulsion to reverse mortgage. That will impose hideous psychological trauma and stress on many who struggled for years to pay off their homes and fear debt. Certainly, assess the home as part of a very generous asset threshold, and make loans available to those who want to take advantage of them, but DO NOT DEEM REVERSE MORTGAGE INCOME, and stop bashing retirees and blaming them for economic problems. They, as a class, have suffered more than any other Australians due to falling investment returns, and it’s time the rest of the nation acknowledged that and gave them a fair go.

    Cowen, bugger off back to your burrow and stop sprouting self-serving nonsense. You have no idea what life was like for retired Australians, or why they choose to live as they do. And you clearly don’t acknowledge the injustice they have suffered, OR that Australia carries a very low aged pension cost by world standards, one that ISN’T rising much, and one that is leaves vast numbers of retirees in poverty. And you certainly have no idea what it is like to face up to 35 years, or maybe more, with no income earning capacity, while having IDIOTS tell you how well off you are on $22,500 a year income, with a modest home, no pension concessions, hideous health and care costs, needy children and grandchildren you want to help, and a savings nest egg that, by the time you are 80, will be next to nil.
    A million in assets is bugger all for many younger retirees!

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      Hi Rainey I think we are pretty close to Simon’s generation living the consequences of the past 40 years. The international share index is looking very shaky, Aussie shares are over relying on financials and the junk bond bubble is out of control.

      They can’t raise rates and I seriously doubt the government could finance this wild idea of Simon’s to take the few people with no debt and join them up to the youngsters living the high life on redraws from bubble house prices and interest only loans.

      The numbers of home owners who took on mortgages for second investment properties and the overseas speculators buying up on the off chance they can pick up capital gains is starting to unravel.

      No one can really make any money at 2% or less, with stagnating and falling salaries, over indebted businesses unable to invest and rising unemployment.

      Even Harry Triguboff had a whinge today that he can’t make the gains he once did poor darling billionaire.

      We will be alright Rainey. The neo liberal nonsense has a ways to go yet but once it is done hopefully some sanity will prevail.
      I read somewhere that 1927 and 1928 were pretty crazy times too.

      Anyone deliberately getting into debt to fuel consumption right now is crazy and this is exactly what this Simon is suggesting.

  3. 0
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    I read here that a person with a family home worth over a million is wealthy. In that case most of Sydney and Melbourne are “wealthy”. The home prices jumped for reasons other than the owners- who had lived in therm for years, saved, yet the home was probably only worth $300K 30 years ago. Does that mean that because those people looked after their own home for 30 years, and worked hard to maintain those homes, are now penalised while scrubbers who found time to play pokeys, pub drools, and allround dropkicksa, get a pension. What sort of society are we aiming at- a family of hopeless cases that throw away all their money and want a hard working family to prop them up down the track. Please. Could somebody out there explain why I have to subsidize a dropkick- cos I saved and look after my home- which is worth a million. I built it for $20K years ago. Please explain somebody.

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      The ‘good’ news is the median house price in Sydney has fallen back below $1million.

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      Once the speculators take fright and walk away it could be back to a reasonable value Oars. We have been through property bubbles before but this one is a doosy due to all those trillions of debt created by Central Banks with no idea what else to do.

    • 0
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      Some people have Pokeys and Pubs on the Brain !! 🙂
      Stop it or you’ll start another Movement ! 🙂
      “Offended Dropkicks against Discrimination”
      Haven’t we got enough Weirdo Mobs roaming the Streets already ? 🙁 🙁

  4. 0
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    A breath of fresh air to read someone brave enough to analyse a sacred cow of the Australian society. Well said Mr Cowan. Pity there is not a politician game to follow your eminently sensible proposal.

    Amusing, but disappointing, to read the self centred reactions on this page. Think of someone other than yourself people.

    • 0
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      I agree completely. Mr Cowan should be commended and his ideas need to be given serious thought and debated in an open and calm manner, quite unlike the initial comments on this thread.

    • 0
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      Why don’t you think of someone other than yourself, people have many different circumstances forced on them, and like bobbalinda said may have gone without all there lives to pay off there home

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      Well, I agree with most of the comments here (except yours), but mine are not self interests. My home is not worth any where near the magical million, so the asset test wouldn’t probably affect me. What would, would be the compulsion to mortgage people’s home to survive. I am concerned that many people would end up with no assets by the time they need to go into a nursing home, and therefore wouldn’t be able to afford to do so. Does Mr Cowan propose that the Govt subsidises this cost? Where would the money come from? – probably out of the savings from the pension. In other words, the Govt would be no better off, and many pensioners would be destitute.

      A more equitable and fairer system would be to perhaps introduce a higher tax rate for excessive contributions into super, but more importantly, introduce a system whereby high super incomes in retirement would be taxed. A very simple way would be to tax all super incomes at normal rates, but allow an additional $50,000 tax free threshold on top of the existing $18,000. That is income below $68,000 would be tax free, anything over that would be taxed. Income of $150,000 would attract tax of around $18,200.
      Surely this would be simpler and fairer?

    • 0
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      Saalbach’s reply seems to offer a fairer system

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      I totally agree with the author, and believe me, my husband and I are not wealthy. When we retire at the end of the year we will have to sell our house in the city and move to the country so that we can afford a small house outright. Not that that is a problem, we’re looking forward to it. And hopefully, when we’re gone, there will be something there for the kids. But I certainly don’t agree that people should keep their big expensive houses for the next generation and claim full entitlement to the pension. It’s very emotive as we can read here, but that’s my opinion, like it or lump it.

    • 0
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      Dear Saalbach, forgive me if I’ve misunderstood your comment, but I believe the Government already does hugely subsidize the cost of nursing home accommodation. Plenty of people go into nursing homes with no income, apart from a Gov pension. The Government pays for them.

    • 0
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      Saalbach, you make some good points. I believe a another solution would be to tax the value of the family home at say 20% of the value or the amount the Govt provided as a support payment, which ever is the lesser. The people with high value homes would contribute more from their estate.
      Queensland Diva, well done, it’s refreshing to read comments from someone other than the Welfare Entitled lot.
      Dave V, you are somewhat right, but, try and get a decent place if you are relying on Govt support.

    • 0
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      I looked Simon up on Linkedin. This genY well off ‘researcher’ has done a fair bit of work for the Abbott government from what I could see. Sounds like the two may be connected at the hip. Please clarify Simon!

    • 0
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      There are always places for those who do not have the funds to go into nursing homes and the government pays.

  5. 0
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    It’s the retirees or nearly retired who withdraw $300k, $400k, $500k and upwards from their super and tip it into home renovations that need to be controlled in some way. They’re doing it a) because they can b) because they’re increasing the value of their untaxable asset (the home) and c) because they become eligible for the pension or more pension dollars..
    In Sydney and Melbourne there are lots of home renovations happening and this is a significant reason why.
    Adding $500k to the value of your home as property values soar is very, very smart. It’s better than the money languishing in a super fund or bank account and affecting your age pension. So tell me this is it right that one can increase the value of their untaxable asset by 50% or more and by doing so receive an increase in their age pension?

    • 0
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      That’s nonsense. Doubt anyone who has worked and saved all their life would ever spend the amounts of money you mention here so wastefully.

    • 0
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      No doubt some do act in the way you say Golfer, but much more likely is that shortly before retirement, some upgrade to a more expensive house, then use the 50% super you mention to pay it off on retirement (along with that world trip, cruise, new car etc) thus preserving a substantial sum to bequeath to their kids whilst rendering themselves eligible to an aged pension.

      Then there’s those who bought property decades ago and are now reaping significant growth in assets in the hundreds of thousands or even millions and somehow see that as different to someone who say bought a truck load of low cost shares in some go-nowhere business that are now worth hundreds of thousands or even millions and are expected to liquidate to live on.

      Go figure!

    • 0
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      Yes KSS except that people with significant investments usually own a home as well.

    • 0
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      Agree. Perhaps that’s more of an issue with how super is treated, rather than treating the family home as an asset for means testing.

      Would it be better to ensure that people cannot draw lump sums from their super (isn’t super supposed to fund your retirement? how can you do that if you draw it out and spend it – on anything), except in dire circumstances?

    • 0
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      Golfer: you are correct. Only thing is those home renovators account for many jobs in the building trades. That is the problem with letting people withdraw as a lump sum. Governments of both persuasion are already working on turning super into a pension which they administer so in time access to super will be stopped. Then there will be even fewer jobs in our economy. Add to that the effects on jobs of mass robotics and we all need to worry about where Australia will head in 20 years. Not looking good…and a good time to find yourself an island somewhere to escape what is going to happen in our society and other around the planet.

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      Richied, re isue of how Super is treated. Yes I agree, as long as the people who choose to invest in Super are aware that this will happen from the start. It will then be up to them to decide if they wish to put extra money into the scheme.
      I started putting money into Super when I was twenty, long before they were even thinking about compulsory Super schemes.
      I was sold a package that would allow me to terminate the investment and take the money at 55 and take out lump sums as required, at that time it was not meant to be a pension replacement scheme.
      I doubt that I would have even considered putting money into Super at that age with the restrictions that are being advocated now, I’d probably just rely on the pension.

  6. 0
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    For the past two years I have been “stunned, shocked & appalled” by what has been happening. The current right wing conservatives have squandered so many ‘once in a decade’ opportunities. As well their treatment of seniors has become a disgrace.

    A better solution – cut the nonsense. Give all people of retirement age the full pension and tax all income in the normal way. Simple. This gets rid of the bureaucracy associated with monitoring the current ineffective system and puts everyone on an even footing. Also you are not punished for saving to supplement your retirement as is happening in the current political climate.

    I am a swinging voter: I am not into parties; just policies; the only way to ever change things is to ensure a formal vote and mark the present government last. That sends a message to many.

  7. 0
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    No Brainer, Cut foreign aid programmes, fix the health, welfare and education systems and if there is anything left over use that for Foreign aid. Charity begins at home!!!!

  8. 0
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    The politicians and civil servants all retire on state (taxpayer) funded pensions. Are we going to see the value of their homes taken into account and adjust their pensions accordingly?

    • 0
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      totally agree, Bronwyn’s laughing all the way to the bank

    • 0
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      That’s tantamount to Insulting Royalty ! 🙁

    • 0
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      BigBen you have cracked another insight. There are four different main factions that gain favours in Oz. 1. The poiticians who get a pension after stuffing upo our nation over a two term period( irospective of age- and a very generous pension and other perks) they don.t have their assets taken into account 2. The thousands of Federal, State, and local government servants ( ditto but they have to wait till they are 65 etc, but still don’t have their assets assessed to gain that pension 3. the worker in the “real world” of private employment – has a miserable pension based on his/her income and employer’;s input that may be minute, has no real advantages and is taxed out of the so-called beneit before he receives it, so with hard work scrimping and doing-without over 40 or 50 years has a neat house that has been updated, maintained at his own expense ( that’s me folks), 4 then there are the others who have not really attempted to save, bludged consistantly, played the system with false names etc . This last group does not include the few genuine ones who really need a helping hand. So that’s it. If you have a plan to talk big, spend other peoples money, work three months a year, walk away from your mess and get a great payout- be a politician in Australia. Any party- maybe the poppy-growers party or the Pups for Muts party, or the “Don’t look now they’re watching us ” party. You name it, now is the time to be INDEPENDANT. !

    • 0
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      Agree Oars. Good to see that you have come around to my way of thinking and see that there is only one way out to fix the bastards at their own game.

  9. 0
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    All very well to use up the equity in the family home, but what happens if the person needs to go into care due to their inability to care for themselves. No equity left to pay the huge costs to enter aged care which is probably extortionate any way. I doubt my mortgage free home would raise sufficient money to allow me to obtain a place. Leave age pensioners alone and look at those non taxpayers who have lived their entire life on welfare.

  10. 0
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    Once again we have this flawed assumption that one million – including the family home – makes someone wealthy. In today’s world, a million isn’t much at all, especially if you are looking down the barrel of a 30 – 35 year retirement with nil earnings, inflation, and rising health and care costs. And some worked very hard and went without a great deal to accumulate what Cowen and others now seem to imply they should just hand over for the benefit of folk who didn’t work as hard or sacrifice as much. There’s no respect for the right of people to benefit from their own endeavours and planning. It’s all just greed and selfishness and green eyes!

    The assumptions of those who want to keep hitting at easy targets are so flawed it’s astonishing. And the result of pursuing such flawed assumptions with equally flawed policy will be massive poverty and rising government costs.

    Those of us who saved for retirement and tried to secure our future are now being slaughtered for doing so. That can only reduce future savings and planning and drive the burden on the taxpayer far, far higher.

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