In the final article of our Budget 2016/17 series, which focuses on different aspects of retirement income, we consider potential changes to the exemption of the family home in the Age Pension assets test, a situation which may change in the May budget. We also invite your feedback and participation in our Federal Budget 2016/17 survey on the measures that you believe should be introduced by Treasurer Scott Morrison to best support your need for a sustainable retirement income.
The current rule
Whether it is worth $100,000 or $10 million, your primary residence is currently exempt from the asset test for Age Pension eligibility.
Many organisations have suggested the introduction of a threshold of about $2,500,000 or $3,000,000 as the level at which the family home is counted as an asset by Centrelink; reason being that those in houses worth this amount could probably fund a larger proportion of their own retirements, by releasing equity in these homes or downsizing and using the proceeds as retirement income. In particular, the Actuaries Institute has suggested a partial assets cap, but this would be balanced by exemption for income derived by access to the equity in the family home.
Darryl Kerrigan in the Aussie classic The Castle nailed it. A man’s home is his castle, particularly in Australia. So any suggestion that the home be viewed as an asset that counts us in or out of an Age Pension is normally met with fear and loathing. But we are now living in times when an overheated housing market means many inner suburban homes are valued at $2, $3, $4 million or more.
So should the owners really expect the public purse to support them in retirement? Yes, there is the argument that these owners have probably paid more than their fair share of taxes over the past 40 or 50 years. But is that a sufficient reason to allow the family home to remain fully exempt from the Age Pension asset test? It’s a tough call, but I believe that those living in homes valued at $3 million or higher do have choices that are denied to many. And that it is fair to expect them to contribute more to their own retirement than those who are renting or living in much humbler abodes.
So, where to draw the line? Above $3 million, and using the Actuaries Institute’s approach, of asking such owners to release equity from their homes is very smart – with the inducement that this income will NOT be assessed in income testing for the Age Pension. It seems like a win-win for the Government as well as asset-rich retirees.
What do you think?
Should the family home remain fully exempt from Age Pension assets testing? Or should homes above a certain amount be, at least partly, included?