Asset-rich, cash-poor – that’s the refrain of many older Australian home-owners as they approach retirement age.
Which makes Michael Rice’s recommendation in his report, The Age Pension in the 21st Century, presented to an Actuaries Institute Financial Services Forum, provocative.
Mr Rice says the pension and superannuation systems favour wealthy, home-owning retirees at the expense of middle-income retirees and renters. He says retirees’ homes valued at more than about $500,000 should be included in the Age Pension assets test.
“Currently, the exclusion of the family home from the assets test creates distortions in savings patterns and favours home-owners over renters. In addition, it discourages downsizing, as the proceeds of downsizing would become subject to means testing.
“Up until about 30 year ago, the value of a family home in a capital city was about 2.5 times average annual earnings. It is now between eight and 12 times earnings, depending on the state or territory. Consequently, the home is a valuable investment, far beyond what was originally envisaged for social welfare benefits.”
Including the family home in an Age Pension assets tests – and at what point – is an emotive issue. What do YourLifeChoices members think about Mr Rice’s report? The overwhelming sentiment was anger.
Here are some of your edited comments:
“I am sick and tired of hearing that retirees should sell their family homes to free up the property market. I would bet all politicians in state, federal, and local councils have more property investments than retirees. Leave the retirees alone, especially on home ownership and superannuation.”
“I for one, reside in a two-bedroom apartment in Zetland, and that is all the downsizing that should be required of me. However, my apartment is close to reaching the value of $1,000,000, which is the reported as the value when most agree it should be included in the proposed Age Pension asset test. Further, by the time I reach eligibility age for the Age Pension, my apartment might even increase in value. I worked very hard, and did without a lot … to pay off my apartment as a single male working/living in the city. I would be horrified should any Age Pension I’m entitled to, be reduced and/or declined, based on the value of my apartment. What am I supposed to do? Move to an Australian country town where I know nobody and have no family?”
“Rubbish – and keep ‘experts’ like this one well away from my house and super …”
“An utterly ridiculous proposal with no reference whatsoever to the market price and bound to impact savagely on those with the least.”
“Most retirees worked hard to own their own home… I know that I worked five days, three nights and an occasional Saturday to pay off my home. I went without many things to pay off the mortgage.”
“We downsized two years ago and our small new place has now caught up to the old larger place in price. Do retirees have to sell up and move into a smaller residence every couple of years? I can see us all living in a tent within 10 years.”
“Generally, property values are driven by the market and are out of an owner’s control but the real impact is that with increased property value comes higher council rates etc. Sure one could ‘downsize’, sell out and move elsewhere, but that, too, comes with a high price to the elderly: increased stress, financial worry and struggling to cope with living in a strange place.”
“I can see merit in these suggestions. The rich are getting richer and the poor are getting poorer. However, we need to protect the middle and poor. We also need to make sure that any savings are passed on so that the full pension is raised to give the poorest a better quality of life. To account for richer and poorer areas, I suggest that the median house price should be also be used. For example, the asset test could start to kick in should a dwelling be above the median dwelling (price) at the postcode. There would also need to be minimum and maximum levels. I know people living in houses worth $5 million who still get a part pension. This should be paid to the poorest.”
Do you believe it is time that Michael Rice’s suggestion that homes worth above $500,000 and above should be taken into consideration in the Age Pension assets test?