National Seniors’ Chief Advocate, Ian Henschke, looks at why the government’s budget measures lack incentives for older people to ‘rightsize’.
National Seniors’ Rightsizing proposal was straight-forward.
We asked that $250,000 be quarantined from the profits of the sale of the family home and exempted from the Aged Pension means test.
Older Australians could keep this money to pay for essentials such as health and aged care as they grew even older – and keep their part or full pension, and the concessions that go with them.
Around one in four National Seniors’ members have told us they live in unsuitable houses – they are too big, too expensive to maintain, or even unsafe if your mobility is compromised.
Our aim was to help those older Australians who most needed it – the ones on part and full aged pensions, that top out at $888 per fortnight for a single person and $1339.40 per fortnight for a couple, including supplements.
The government's initiative is more about superannuation than downsizing. It’s complex and relies on the transfer of surplus sales proceeds into superannuation.
That money will then be considered for the means test. Those who want to downsize will lose some, most, or all their pension, depending on the calculations.
That was a key reason why many home-owning pensioners were staying put before the budget, and it’s hard to see how that will change because of this initiative. There’s also the added issue of stamp duty costs, which vary from state to state.
Here are two examples:
A single pensioner in a house worth $870,000 (the Melbourne median house price is $850,000) sells and downsizes to a $320,000 single bedroom unit. They make $550,000 on the sale and would be able to put $300,000 into a super account, leaving $250,000 cash.
This puts them over the pension threshold, without considering any non-home assets (e.g. car and furniture).
They would need to earn a return of 4.25 per cent per annum on their $550,000 in super and cash, just to replace the pension (now $23,096 per annum, including supplements, with no tax payable), and that’s a tall order in today’s economic climate. They’d also lose the pension concession card, which is worth $2-3,000 per year.
Now let's look at a different example. A couple who are self-funded retirees have more than $821,500 in non-home assets so are not eligible for a pension.
They are asset rich because they have a home worth $2.4 million. They downsize to a unit worth $1.8 million. They can add a further $600,000 in proceeds from the sale to their super, taking it to a total of $1,421,500.
The minimum income they are allowed to draw is $71,075 per annum, with no tax payable.
They are winners.
One estimate I saw in post-Budget analysis estimated 10,000 homeowners may take advantage of the new scheme each year. That's a fraction of the number of pensioners in Australia who would be helped by a genuine downsizing policy.
National Seniors believes it’s good to have incentives for Australians to better fund their retirement. But as you can see from our examples above, this policy is hardly a game-changer.
At the same time, some full and part-pensioners may look at this as a significant disincentive to downsize.
National Seniors will continue to campaign for a genuine downsizing policy and with almost two million pensioners who are homeowners, this is a policy the Federal Government and all parties need to get right.