Renewed calls for the family home to be included in the assets test have been made by the former Abbott Government’s Commission of Audit leader, Tony Shepherd.
As we reported yesterday, businessman Tony Shepherd claims that future generations will suffer from a so-called ‘budget drain’ caused by retiring baby boomers.
Alongside his claims that the Age Pension is unsustainable in its current form – as disputed by Kaye Fallick yesterday – the prominent business leader suggests that the family home be included in the pension assets test, to avoid a ‘bubble’ in the cost of social welfare.
“It is an option and one that we originally proposed over a certain value. I think that’s just one example of the sort of things that may have to be done,” said Mr Shepherd.
The report, created on behalf of the Liberal Party-linked Menzies Research Centre, precedes the 9 May Budget – one which Treasurer Scott Morrison suggests will either make or break Australia’s AAA credit rating.
Mr Shepherd believes that including the family home in the pension assets test “may have to be done” to repair the budget and “get growth going again”.
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Tony Shepherd doesn’t seem to realise is that what he is suggesting means more to most Australians than mere money and budget repair. The family home is an emotional investment, not just a financial one. It is the centre of family life, the house of memories, and is just as important for the wellbeing of many retirees as the monetary value of the property itself.
Baby boomers and older Australians have worked hard all their lives to save money and build assets for a comfortable retirement. Many have bought houses in Melbourne and Sydney, in suburbs which have risen in value over time.
Now, there may indeed be a solid argument for including houses over a certain value in the assets test, but that should only include people with assets over a certain amount.
However, there are those who have poured their life savings into owning a home, who are, or will be, relying on the Age Pension as a form of retirement income, because they have little wealth apart from their house.
Under the new asset test rules, a couple with a house and assets up to $375,000 can receive a full Age Pension, but those with a house and assets over $816,000 receive nothing.
If the home were to be included in the assets test for a couple – expected to live between 19.5 and 22.3 years in retirement – based on the ASFA Retirement Standard, that $375,000 would last them around 9–10 years for a ‘modest’ retirement; and that’s assuming they fully own their home. So, they’d still be relying on an Age Pension in some form.
Many people are asset-rich and cash poor, so if they fully own a home (over a certain value) that is included in the assets test, they’ll have to sell it to receive some form of retirement income.
What Mr Shepherd’s suggestions prove is that he is so far out of touch with ordinary retirees that these implications may never have crossed his ‘business’ mind.
Adding the family home to the assets test may be an option, but it needs to be carefully thought through, otherwise many older Australians could suffer undue hardship in retirement.
Should the family home be included in the assets test? At what value do you think it should qualify it to be assessed? What value of assets apart from the family home should be allowed before the home is included in the test?