Accessing equity in the family home could be a retirement saver for millions.
Yesterday the Actuaries Institute released a Green Paper, titled Unlocking Housing Wealth, which canvassed a range of policy possibilities to help retirees access wealth in their homes and use such money to fund a more comfortable retirement.
The paper tackles the conundrum of asset-rich, cash-poor retirees whose wealth is tied up in the family home. Access to even part of this money is currently discouraged by a pension assets test which sees the home exempt whilst cash is measured when Centrelink decides if an Age Pension will be paid. So the Institute has suggested a partial assets cap (i.e. the wealthiest homes might be included in assets, but most won’t), and an exemption for cash derived from equity release from the family home.
This would be a game changer for many retirees. The Institute further calls for a safer principles-based approach to such legislation, ensuring security of tenure – or the right of the retiree to reside in their home without fear of it being taken by a financial institution. It also suggests better regulatory protection for the elderly from financial abuse by those who stand to gain from the retirees’ assets.
Read the Actuaries Institute Green Paper here
There’s a lot to like about both the Actuaries Institute’s approach and its suggestions. First up, it declares that its mission is not to save the government money – and screw pensioners in the process.
In recent years we have been told that Australia has a three-pillar retirement system, comprising the Age Pension, superannuation and private savings. But in reality it’s more complicated than that. It’s actually a four-pillar system with home ownership representing the difference between a reasonable retirement and poverty.
At last we have a non-partisan institute which tells it like it is – and presents policy options which place sustainable retirement income and equity in retirement in the centre.
The value of retirees’ homes is huge – according to the Actuaries Institute approximately $1 trillion – yet many older Australians remain asset-rich and cash-poor in their retirement years because there is no practical way of accessing at least part of the wealth locked up in the family home, without jeopardising access to an Age Pension. Those who do downsize are hit with stamp duty that eats up much of the profit.
So the suggestions offered by the Actuaries Institute make a lot of sense. In particular, the Institute’s note that the Green Paper “was not primarily concerned with reducing government expenditure on age-related services …” is a breath of fresh air. Given Australia’s ranking as the third meanest nation in the OECD when it comes to spending on Age Pensions, at last somebody has noticed that the main game is NOT to save the government money – but rather to help retirees fund longer retirements in a dignified manner. The report’s author, Ms. Catherine Nance, is to be congratulated.
Or to quote 81-year-old Leonard Cohen, Hallelujah!
What do you think? Do the Actuaries Institute’s policies make sense? Should you be able to access wealth from your home without losing the pension? Or is there a better way?