14 March 2016 | Jessica Irvine | SMH
It’s been called “nailing granny to the floor”.
Many older Australians live lives of relative income poverty because policies discourage them from downsizing and accessing the equity stored in the family home, according to a new report.
Changes to the age pension asset test and relief from stamp duty would help retirees fund a more comfortable retirement by unlocking the roughly $1 trillion of housing wealth owned by over 65s, the report released on Monday by the Institute of Actuaries of Australia finds.
Australians aged over 65 suffer the second highest relative income poverty rate of the wealthy countries in the Organisation for Economic Co-Operation and Development.
Only Korean retirees are worse off.
Relative income poverty is defined as having an income less than half the national median equivalised household income. Half of all Koreans aged 65 plus live in relative income poverty. In Australia the figure is 36 per cent. Mexico is next at 31 per cent.
“In short, our retirees are asset rich but income poor,” the Actuaries’ report says. “Accessing part or all of their housing wealth will assist many individuals to meet their retirement needs.”
Report author and partner at PWC, Catherine Nance, said older Australians were acutely aware of the financial penalty they face by selling the family home. The family home is not included in the age pension asset test, but money released through a reverse mortgage or by downsizing, and moving to cash, does, reducing the amount of pension a person receives.
“Typically people want to stay in their homes as long as possible, but they eventually get to the point where they simply can’t. We know anecdotally that people are very driven by the age pension when they’re making that decision.”
Ms Nance said it was not unheard of for children, hoping to maximise their inheritance, to encourage their parents to remain in the family home, even if it no longer suited their needs.
“Sometimes the family can be driven more by self interest. Sometimes the children are very reluctant, even if the parent is going into aged care, they’re reluctant for the family home to be sold even if it could mean better quality of aged care,” Ms Nance said. While not the norm, such pressure could in some cases be considered “elder abuse” by children.
At the same time, however, many children are also a common source of unpaid labour for their parents, and could expect to inherit some money as recompense.
“What you have is an implied cross-generational contract, which says if you look after me I’m going to leave my house to you. That happens a lot and it’s a very valuable thing we don’t want to impede, otherwise the elderly would have to go out and buy those services.”
Ms Nance said many baby boomers, and their forebears, could boost their standard of living if penalties that apply to selling the family home were removed.
“Tax policies for years have encouraged people to save via their home. That’s great, but it’s a highly illiquid form of savings and there are impediments to people using that asset better.
“We don’t want to force people to move out of their homes or borrow against them. We’re not trying to cure the budget deficit here. But we do want to help people to make better decisions that would improve their lives.”
The Actuaries’ report Unlocking Housing Wealth – options to meet retirement needs proposes a range of policy changes.
targeted stamp duty relief for older Australians downsizing to smaller homes, similar to stamp duty relief for first home buyers.
partial relief (up to a cap) from the age pension means test for people who take out reverse mortgages or downsize their homes.
greater assistance for seniors who rent their homes, who are at a relative disadvantage to homeowners.
some tightening of the age pension asset test for very wealthy retirees, possibly through a cap on the exempt value of the family home.
“This is a fairness measure aimed at a relatively small proportion of ‘asset rich’ retirees who currently receive a full or part-pension,” the report states. “Reasonable transitional arrangements and recognition of regional differences in housing values would be required.”