Older Aussies wary of revamped downsizer scheme

couple taking advantage of downsizer contribution

The government wants older Australian homeowners to downsize.

Officials of the previous and current Labor governments have talked about housing affordability, housing availability and older Australians living in homes that are too big. Anyone feeling guilty about those empty spare bedrooms?

And the incentives to move from ‘too-big’ homes into something smaller, and more appropriate, have come thick and fast. The ‘problem’ is that many older Australians are happy where they are or see more cons than pros in moving.

In the YourLifeChoices’ 2022 Older Australians Insights Survey, which had almost 6200 respondents, 72 per cent said they owned their home outright and another 12 per cent said they were homeowners with a mortgage. When asked if they were considering downsizing, 56 per cent said no and 20 per cent yes.

Asked, ‘Do the government’s latest incentives make you more likely to downsize?’, 70 per cent said no.

So what are the latest incentives?

When the downsizer contribution scheme was first introduced on 1 July 2018, only those aged 65-plus were eligible. That was reduced to 60 on 1 July 2022 and to 55 on 1 January 2023. More Aussies please apply seems to be the message.

The scheme allows eligible people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute, and contributions do not count towards non-concessional contribution caps.

But wait, there’s more.

From 1 January 2023, the government also extended the exemption of home sale proceeds from the Age Pension assets test from 12 months to 24 months.

This gives downsizers more time to buy, build, rebuild, repair or renovate a new principal home before the sale proceeds are included in the assets test for the pension.

Also, the deeming rate on principal home sale proceeds (intended for the purchase of a new home) was lowered from 2.25 per cent per year to 0.25 per cent per year. The income test now also uses the lower deeming rate of 0.25 per cent to calculate deemed income generated from the proceeds of a principal home sale for 24 months after the sale.

What are your concerns?

More than 49,000 people have made downsizer contributions and the total put into super has passed $12 billion, with the majority of contributors being women, writes Age columnist Rachel Lane.

But YourLifeChoices members appear generally unenthusiastic. Asked for their concerns in the 2022 Insights Survey, the following responses were repeated time and time again.

  • availability of suitable smaller accommodation
  • cost (and stress) involved in selling the family home and buying another
  • stamp duty
  • proximity to medical facilities is important
  • we love where we live near family, friends and familiar amenities
  • can’t contemplate clearing out the junk collected over 73 years
  • the dog, cat and grandchildren – I need the room!
  • suitable space for a caravan
  • the quality of smaller homes
  • getting something with or near outdoor space.

Pros and cons

EISS Super summarises the benefits and the areas of concern with the downsizing incentive.


  • Contributions are not subject to the Total Superannuation Balance (TSB) limit. Generally, you can’t make non-concessional (after-tax) contributions to your super account if you have a Total Superannuation Balance of $1.7 million or more.
  • There’s no requirement to buy a new home.
  • You have 90 days in which to make your contribution, but there are no rules on where you can invest the proceeds in the meantime.
  • It’s an opportunity to boost your super balance, particularly if you haven’t had the chance to save for a ‘comfortable’ retirement.
  • There is no maximum age limit for making these contributions.


  • If you make a downsizer contribution, it will count towards your transfer balance cap if you decide to move your super into the tax-free retirement phase.
  • Downsizer contributions count toward Age Pension assessment tests.
  • You can only take advantage of this measure once.
  • There’s a time limit. Under the downsizer contribution rules, you must make your downsizer contribution within 90 days of receiving the sale proceeds.

Case study

Ms Lane offers the following case study to show how the January changes to the scheme can make a big difference to participants.

“Think about Shirley, a full pensioner, selling her home for $800,000 and using $650,000 to buy her new home. If she sold her home last year, the $650,000 would be exempt for 12 months from the assets test. The deemed income on that amount would be $14,600 a year and could cause her pension to reduce by $7300 a year. After 12 months, the $650,000 would be assessed as an asset and her pension of $26,700 a year could be lost.

“If Shirley downsized this year, the $650,000 would be an exempt asset for two years and the deemed income would be just $1625 a year – a potential benefit of about $33,000.”

Retiring with a mortgage?

The downsizer incentive does offer a ‘get out of jail’ card of sorts to the increasing number of people retiring with a mortgage.

Household Capital CEO Josh Funder says up to 40 per cent of Australians retire with a mortgage, though it’s often a small mortgage.

Tribeca Financial CEO Ryan Watson says carrying debt into retirement is generally a bad idea, “largely because it is the time in your life where you need to be drawing on an income stream to provide for your daily expenses, not for continuing to service debt”.

Hence, downsizing – whether to top up super or pay down debt – could be an attractive option.

Other options for older homeowners wishing to free up cash or pay down debt are reverse mortgages and the government’s scheme, the Home Equity Access Scheme (HEAS).

Are you planning to stay in your home for as long as practicable? Does the thought of culling your possessions seem too difficult? Why not share your thoughts in the comments section below?

Also read: Pay off the mortgage or top up your super

Written by Janelle Ward

Energetic and skilled editor and writer with expert knowledge of retirement, retirement income, superannuation and retirement planning.


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  1. We were already retired when we decided to downsize. The nasty barb in the process was we no longer had super accounts to put the funds into. This resulted in Centerelink saying we had too much in the bank, so they cut off our pension and benefits. We’ve since renovated (back to a similar quality we downsized from), had surgery and reduced the bank balance, but would have been better off staying with a larger house that didn’t need work and was appreciating faster than our smaller home. The only one who did well out of the whole process was the government who saved money by not paying a pension until we spent down our savings and all of the service provider who on Service NSW advice, cut discounts until we once again qualified for our AP.

    • Good luck, OzJames70. I can so relate. WE are in the process of repairing our old home for sale & new home to live in, but a 2 story home was a bit much for 75+. No downsizer privileges as we already own both homes, mortgaged of course.

  2. My wife and I decided to downsize several years after retirement. In vain we looked for a smaller property in Melbourne’s inner eastern suburbs. To start with “smaller homes” were at a premium, and agent’s costs, and stamp duty would have rendered any contribution to Super as negligible.
    So, we opted for a retirement village, where no stamp duty was payable, and we banked the maximum downsizer contributions. Of course, we lose a fair slab of money under the usual RV deferred payments scheme, but the lifestyle is great, and our beneficiaries are more than capable of looking after themselves.

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