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Reader Survey: home values in age pension asset test

Please check our article on the merits of including the value of the principal place of residence in the pensions asset test, subject to a high threshold to ensure it only captures the 'wealthy'.

Then add your opinion in the survey.

This week, the OECD Survey on Australia said:

 “Age pension payments have risen more markedly than other social benefits, such as those for the unemployed. In addition, the prolonged boom in house prices have inflated the wealth of many pensioners without impacting their pension eligibility given that the value of the family home above a modest threshold (AUD210,500) remains outside the means test. Half of the government’s spending on the age pension goes to people with assets more than AUD500,000. Indeed, the recent Retirement Income review highlighted that the distribution of age pension expenditures is much less skewed to lower wealth quintiles than other payment.”  

There are only two questions, it will take only a couple of minutes.

 

25 Comments
Trevor G
September 17, 2021

The reverse mortgage makes sense.

In your younger years you work and pay down the mortgage. In your retirement years you live off the tax free capital gain that your house has accrued.

However there would need to be some sort of statutory not for profit body set up to offer the reverse mortgage. No one should make a profit out of it in my opinion.

Regarding the threshold one option would be to base it on a calculation of life expectancy and an estimated annual cost to live comfortably plus an additional buffer to cover the unknown unknowns.

john
September 20, 2021

Regarding
""there would need to be some sort of statutory body set up to offer the reverse mortgage""
There already is and its called Centrelink. Refer their Pension loan Scheme !

GLeung
September 20, 2021

And it offers something few people wants - isn't it typical?

john
September 23, 2021

Think your right GLeung. Also I believe the commercially available reverse mortgages are even worse than the centrelink option !!

Steve
September 16, 2021

Gotta confess I'm lost here. As Andrew says, a house is a house. It generally produces no income whether its worth $250,000 or $2.5MM. I live in a regional area so multi million dollar homes are not a problem (!) but I can see if someone has lived in a capital city area with high growth for a number of years they can have a valuable asset but little income, particularly if most spare cash has gone towards the mortgage rather than building up the super kitty. Farmers have had the same problem in the past - asset rich bit income poor.
So lets suppose we limit pensions to those with houses worth less than say $1MM just for example. If someone has a house worth $1.1MM and $0.5MM in super what do they do? Sell their house? Hardly rich bastards worthy of shoddy treatment.
The only thing I can think of would be to recover the difference via some form of death duty/inheritance tax based on the capital gains accrued in the estate; that is after the owners no longer need the house. Not going to win many elections with that option though. And a fertile ground for numerous loopholes no doubt.

Bill
September 16, 2021

Why are the young paying taxes to fund pensions for people who own houses the young could never afford, and then that same house gets handed down as an inheritance to the wealthy owners children. They say Australia rewards hard work, if that was so why do you get taxed more the more you earn, while houses go up tax free faster than the young can earn, only to benefit the owner and their dependents

Kathy
September 18, 2021

Bill. Those houses have been bought by people who in younger years paid tax. So if they have earned it they should be able to or family benefit from those earnings years let. You get what you work and save for one way or another. Maybe they have gone up in value but who's fault is that, theirs. No, they are just benefiting from it. Good luck to them. Envy is not a nice word.

John
September 20, 2021

Nothing to do with ""Envy"". All to do with fairness and we should be taxing unearned income and reduce taxing earned income.

Andrew
September 16, 2021

A working person on a modest income who bought a modest house in the eastern suburbs of Sydney in the 1980s would have paid about $150,000 (and paid 15% or more interest). I know because I bought a unit in clovelly in 1986 for $ 74000, so this is not hypothetical. That purchase alone means I will never be eligible for the aged pension, a fact I am infinitely grateful for. Now that they are elderly and retired their house might be worth about $3million but their means are still those of a working class family who just happened to buy in an area that has appreciated markedly. Their home is a home. It is not an investment or a tax rort, it is a home. The proposition is that they should be forced to sell at a time in their life where stability is critical to their quality of life, be disconnected from their community when they most need that connection and leave their home of many decades incurring substantial cost in stamp duty, conveyancing, removal costs, agent fees etc and all the attendant stress. The alternative, eat into their capital through reverse mortgages is a source of insecurity and stress. The pension is a pittance and there are far more people exploiting the disability pension and a myriad of other social welfare payments than pensioners. No matter what a persons house is worth it is beyond me how anyone lives on the current aged pension. Even a beer at the pub or club would be a rare luxury. A little more thought, compassion, proportionality, nuance and balance is needed in this discussion.

Lyn
September 17, 2021

Andrew, So very well put.

Ramon Vasquez
September 22, 2021

Agreed !!! There is always someone , or some organization, thinking up ways and means to defraud , yes, defraud, rightful owners of their own homes after a lifetime of honest labour and self sacrifice to achieve home ownership. An example; the current W. A. government is finalizing legislation to "Kick a Granny Out of Her Flat". Take care, Ramon .

DANIELLE
September 18, 2021


Agree. Too many exploit the welfare system which "wealthy" pensioners who own their home having paid it off over forty years are now looked upon as the means to fund ever increasing social welfare. Take a look at disability pensions, open to the most appalling exploitation by so called family.

Brian
September 16, 2021

Graham you know that I have agreed with this policy change for many years. House prices have opened up real inequity in this country and those with means need to pay for their retirement so there is more to fund those that really need it. Regards

Graham W
September 16, 2021

Make the limit $700,000 or 20 % above the medium value for the local area, and give a two year phasing in period.
Also make such events that would lead to downsizing, exempt from State Stamp Duty. The States would still gain revenue from the duty imposed on the higher priced property anyway.

Michael2
September 19, 2021

Yes, I think the limit has to be connected to local area values

C
September 16, 2021

"...given that the value of the family home above a modest threshold (AUD210,500) remains outside the means test. " What is this $210,500 threshold? I thought the entire family home is exempt from the asset test.

I like the idea of an universal pension which would allow those in need some dignity and reward those who have worked hard to achieve an independent retirement.

With the current system, I believe there should be a ceiling above which the age pension should be gradually reduced. Setting the ceiling is going to be complicated because house prices vary through out the country. I would suggest something like a multiple of median house price in a particular capital city say 30 years ago. For example, for Sydney, the ceiling would be approx. $2.5m, being 30 times of the price in 1981 ($78900). For Brisbane the ceiling would be approx. $1.5m.

Graham Hand
September 16, 2021

Hi C, yes, the entire family home is exempt, but what the OECD is referring to is mentioned in the article. The pension threshold amounts are about $216,000 (now) higher for non-homeowners.

Michael Boulton
September 16, 2021

Pensions are for those in need. Millionaires with house of grandeur who have manipulated their status to receive a pension should be called out. The LNP government is complacent and fear to attack their voting base by cutting out these rorts.

Jason
September 16, 2021

It does seem unfair that the pension is rewarded to those who are lucky enough to still own a home in old age. Divorce, illness, bankrupcy can lead to losing your home owner status later in life. Maybe you have lived frugally and aggressively saved into super to compensate for the loss but the government only allows you an extra $200K in super before you start losing the pension. With average rents for little units close to $25K a year this only gives you about 8 years of renting. Clearly non home owners should be allowed to have more assets in the assets test when calculating pension eligibility.

Ben
September 16, 2021

Exactly, Iniquitous at present

John
September 16, 2021

Within a decade or so, compulsory super balances for new retirees will likely ensure very few get the full aged pension. Compulsory annuities will stop retirees disposing of super to get the aged pension. Problem solved.

GLeung
September 19, 2021

Hi John, another guaranteed business like private health insurance, green slip, etc.? Thank you very much.

David Graham
September 16, 2021

Pension is needed for those who are not millionaires
Pensioners who rent live below poverty line

Graham Hand
September 16, 2021

Hi David, agree subject to some assets or income test. My article is not directed at pensioners who do not own their own home and rent.

John
September 16, 2021

It's strange to me we worked went without to scrimp to buy a house paid rates insurance painted it paid upkeep and now prices have gone up so if we sell to as they say down size the prices even to down size have gone through the roof or retirement villages with their strings and are owned by big corporations where we loose our interdependence. They hound us but large corporations can get gov handouts e.g. job keeper for millions but jealous people want our house we didn't get child care subsidies etc paid high interest rates etc worked hard and we are the bad guys

 

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