'Probably the wrong time, but I can see at some stage the family home value being included in the asset test for an age pension. Federal would probably have to offer an interest scheme whereby the age pension was basically a loan to be paid back upon sale or the property or death. These loans could be packaged up and sold onto larger pension funds for long term investment and thus not count as government debt. The Age pension payments would be booked outside of government expenditure and thus over time dramatically reduce the deficit. This would have to be a cross party support change for it to have any chance of get it over the line.'
AFR today
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The excess value of family homes above a threshold of about $500,000 to $833,000 would be included in the pension assets test under proposals aimed at distributing benefits of government retirement spending more equitably.
Retirees would be encouraged to work part time while their health permitted and trade in their family homes for smaller ones under the recommendations in
a report prepared by veteran superannuation consultant Michael Rice.
The report, to be presented to the Actuaries Institute's Financial Services Forum on Monday, finds that the superannuation system is succeeding in at least one of its goals, with the cost of government age and veterans' pensions expected to fall from 2.7 per cent of gross domestic product at present to 2.5 per cent in 2038.
Plough pension savings into aged care
Mr Rice, chief executive of Rice Warner, said the savings should be ploughed back into aged care and other spending on the aged to deliver a dignified and comfortable retirement for all.
His recommendations for including the family home in the pension assets and encouraging retirees to downsize into smaller homes or borrow against their homes to increase their incomes echo
suggestions by Productivity Commission deputy chairman Karen Chesters in 2015.
Mr Rice's report,
The Age Pension in the 21st Century, says the pension system has no agreed goals and its interaction with the super system favours wealthy, home-owning retirees at the expense of middle-income retirees and renters.
A couple with a $500,000 home and $1.25 million in financial assets would get no age pension, whereas a couple with a $3 million home and minimal financial assets would get a full age pension at the expense of poorer taxpayers.
"If the value of the family home above a certain threshold was included in the assets test, retirees would be encouraged to downsize and unlock some of the value of their current home to provide for their retirement income," Mr Rice said. "This approach may result in a more appropriate allocation of housing supply, as retirees no longer reside in unnecessarily large homes."
If the family home value above the first $500,000 – about six times average male earnings – were assets tested, the age pension would be reduced to a safety net, the report says. But if the threshold were about 10 times average earnings – about $833,000 – two-fifths of retirees would still get a pension.
But Mr Rice said more changes were needed. Current arrangements favour wealthy Australians in the top two deciles of income who receive the lion's share of super tax concessions and are able to build up generous retirement benefits, even after the 2016 budget changes aimed at rebalancing the distribution of benefits.
This comes at the expense of middle Australia, the report says. "It could now be argued that the middle tier of income earners receive lower value from the system. They do not receive full age pensions nor do they have the disposable income to build large retirement benefits."
