Despite being asset rich, nearly one-third of older Australians living on a low income are at risk of experiencing financial hardship.
Figures released last week by the Australian Bureau of Statistics (ABS) confirm what has been widely recognised for some time – that asset-rich but income-poor is an all too common story for many older Australians.
According to the ABS Program Manager of Labour and Income Branch, Jacqui Jones, in the year 2013-14 low-income households accounted for 54 per cent of the top 40 per cent of wealthy Australian households, which are defined by the value of assets less the value of any liabilities. On the other end of the scale, just 19 per cent of younger low-income households had wealth in the top 40 per cent of Australian households.
“While many older low-income households have liquid assets such as bank accounts and shares available to them, there was large variation in the amounts available; one-third had over $50,000 worth of liquid assets in contrast to one-third of older low income households which had less than $5000 in these sorts of cash assets,” Ms Jones said.
Almost three-quarters (74 per cent) of older low-income Australian households owned their home outright, owing nothing on repayments, while just eight per cent were renting. In contrast to this, just one-fifth (19 per cent) of younger low-income households owned their home outright, while almost two-thirds were either renting or had a mortgage.
“Half of all younger low-income households have less than $1000 in liquid assets and two-thirds of younger low-income households had liquid assets of $5000 or less” said Ms Jones.
The average housing costs were $106 per week for older low-income households and $215 per week for younger low-income households.
In 2013-14 when the data was collected, the number of people living in low-income households was just over 4 million, with 1.2 million being older households. In both older and younger households, the equivalised disposable income was between $205 and $511 per week – recognised as being below the poverty line (set at 60 per cent of the median income for all households).
The ABS categorises older households as those in which the reference person (either single or in a couple) is aged 65 years or older. Younger low-income households are defined by having a reference person aged younger than 65.
Read more at abs.gov.au
The ABS data tells us that despite being asset rich and (in many cases) free of liabilities, over 4 million Australian households were living below the poverty line in terms of disposable income in 2013-14. What this disconnect exposes is the gaping hole in availability of comprehensive financial support services for Australians in need, as well as the necessity for better policies.
In March, the Actuaries Institute released a Green Paper, titled Unlocking Housing Wealth, which looked at a range of policy ideas geared at helping older Australians gain access to their wealth in retirement. This Green Paper represented a huge step forward in recognising the need for solid policies in support of pensioners – rather than finding new ways to save the Government money.
For older Australians in low-income households, having wealth tied up in the family home regularly means relying on the Age Pension for disposable income, which is often barely enough to cover basic bills. The fear of jeopardising Age Pension entitlements – as well as the high-interest repayments associated with the commercial equity release products – means many older Australians are stuck living below the poverty line.
If the Government wants to lift the 4 million Australian households above the poverty line, it needs to look at enacting fair policies that will enable asset-rich, cash-poor Australians to access the wealth in their property without having to sell off assets. These policies should make it easy to unlock the wealth of their assets and offer fair repayment structures so that living in retirement is both comfortable and manageable for Australians, older and younger, and for years to come.
What do you think? Would you be inclined to borrow against your assets if the right scheme was available? Can you see any drawbacks to the government offering equity release products?