Family home to be part of means test

The Age Pension has been one of the hottest topics pre-Budget 2013-4. First we had the heated debate over the most efficacious retirement age. We now believe this will be gradually moved from 67- 70 between 2023 and 2035. Next we experienced sustained argey bargey over the indexation and benchmarking of the rate of the Age Pension and a decrease in indexation is a likely announcement on budget night.

With the release of the recommendations of the Commission of Audit (COA) last Thursday, the family home finally hit the headlines. The COA has suggested the family home be included in the means test from 2027, with limits of $500,000 for singles and $750,000 for couples.

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Snapshot of Commission of Audit report 
Full Commission of Audit report

Opinion: Hands off the family home, Joe

When older Australians are assessed for an Age Pension, a means test of their income and assets kicks in. Currently, the family home is exempt from the assets test. This is set to change if the Federal Government follows recommendations made by the COA, with homes valued at $500,000 (singles) or $750,000 (couples) slated to be included from 2027 onwards. While this is 13 years away, it will have a major impact on many of today’s retirees, and those aged 50 and over who will enter retirement over the next decade.

Apart from the disincentive for future generations to save for, and pay off their own home, this suggestion is problematic for a number of other reasons.

Firstly it represents an attack on an asset which has been protected from government policy to date. There is little reason to remove this protection.

Also, the valuation of $500,000 or $750,000 is too low and totally arbitrary. Currently the median house value in Sydney is $660,000, Melbourne $652,500 and Perth $535,000. So it is highly likely that the average homeowner’s prospects of receiving a full Age Pension will be significantly reduced, despite modification by expected price rises before 2027.

More importantly, the family home is not an asset which can be reduced, section by section, or disposed of quickly and easily. You cannot sell off a chunk to help out with a grandchild’s education – apart from signing up for a rather questionable reverse mortgage.

And for those who bought their homes a few decades ago, it is likely that their property is worth many hundreds of thousands of dollars, but if their superannuation savings are simply average (recent reports suggest for those aged 50-65, they will vary between $100,000-$150,000) then the homeowners are probably asset ‘rich’ but cash poor – cash strapped in fact, and unable to maintain their main asset.

Downsizing is simply not the answer many believe it should be. Many retirees have lived in the same suburb for decades. They have built up a local support network of family, friends, health professionals, and community services. Often they cannot afford to repurchase in the same suburb, even if they are seeking a smaller property. The costs of selling and repurchasing are significant, particularly when factoring in state stamp duty. So little spare change – or money to finance a retirement – remains after the transaction. Should the homeowner actually make a tidy profit, then all future Age Pension income is threatened by this cash injection.

What perhaps would have made more sense would have been a consideration of taxes such as the GST (low by global standards) or even the introduction of a death tax. As some witty soul once quipped, you can’t take it with you. So why not allow us to enjoy our (hopefully) longer lives in the houses we have worked hard to buy and improve, and if the Government MUST get its hands on every cent we have saved, let it do so when we are gone.

What do you think? Is it fair to include properties worth $500,000 and higher in the Age Pension assets test? Or should the home remain sacrosanct?

Written by Kaye Fallick