A new package expected to be announced in the 2017 Budget may provide new incentives for retirees to downsize and help to redress housing affordability issues for younger families.
The Federal Government may create some leeway in the Age Pension assets test and the existing caps on superannuation that would ease penalties on those who gain a windfall from selling the family home.
The new rules could allow retirees to put sale proceeds from a primary residence into super without suffering a loss of the Age Pension. By incentivising more older Australians to move home, this could potentially release around 50,000 properties to the market each year.
Federal Treasurer Scott Morrison maintains that the rules will not be designed to force older Australians from their homes, rather, that they will simply remove disincentives to sell their homes and move to more practical residences.
The Budget package will also include measures to increase existing supplies of housing for older Australians, such as retirement communities, so they won’t have to move far from their current community.
The changes to super rules may include lifting the $100,000 annual non-concessional contribution cap, that will come into effect from 1 July this year – but only for people over a certain age who sell their family home.
It is believed that the Government is also reviewing how the $1.6 million lifetime cap could be amended, as well as how boosted super balances as a result of a house sale would affect Age Pensions. Rules that could be adjusted for retirees who downsize may be implemented.
The idea for change came after the Government received a report from the Productivity Commission which showed that an estimated 15 per cent of older Australians wanted to move to smaller homes, but couldn’t because of the existing rules.
Read more at The Australian
Having spent the years before compulsory superannuation paying down their mortgage to own their own home, baby boomers often find themselves asset rich yet cash poor. The plan to sell off the family home, buy something smaller and live off what’s left is often thwarted by the fees associated with buying and selling, and the amount actually needed to buy a smaller, often sought-after unit in their local area.
To make matters worse, what little cash they add to the bank that may make living in retirement possibly more affordable, they lose what Age Pension they had. This puts them right back to square one or worse off than when they started the downsizing process.
Over the years, there have been a few schemes considered to help older Australians downsize – stamp duty concessions was once such an assistance program – and a Government-backed equity release another. However, on the face of it, this current plan from the Government seems to have all angles covered.
Not only will older Australians be able to move to a home that is more manageable, any money they do manage to release from their home would actually be able to be used to either boost their super in a tax-effective manner, or not count against their Age Pension. And if something can be done to limit stamp duty, all the better.
Of course, the intended outcome is that houses will become more affordable for those trying to get their foot on the rung of the country’s hot property ladder. Whether this will actually come to fruition remains to be seen.
What do you think? Do you think this is a good idea? Would you like to see any further incentives added?