A research paper prepared by Michael Rice for the Actuaries Institute’s Financial Services Forum, has suggested the government include more valuable homes in the means test for the age pension.
The current rules for the age pension assets test, it stated, are creating distortions in saving patterns and favours homeowners over renters.
“In addition, it discourages downsizing, as the proceeds of downsizing become subject to means testing,” said the paper.
“It also creates anomalies between different home owners. For example, a couple with a home worth $500,000 and $1.25 million of financial assets would receive no age pension. In contrast, a couple with a home of $3 million and minimal financial assets would receive a full age pension, at the expense of taxpayers in much less fortunate situations.”
The paper noted that up until around 30 years ago, the value of a family home in a capital city was about 2.5 time average annual earnings.
“It is now between eight and 12 times earnings varying by state. Consequently, the home is a valuable investment, far beyond what was originally envisaged for social welfare benefits,” the research paper said.
The paper also said that the value of a home above a threshold could therefore be included in the assets test, to help address this.
“The level of the threshold is a matter for debate. If we wanted the age pension to be a safety net, based on current average earnings, that would exclude the first $500,000 of a home, based on approximately six times average annual earnings,” it suggested.
“The excess would be included in the assets test. Many retirees would receive lower pensions from this change though the thresholds for the asset test would be increased. If we wanted say 40 per cent of the population to receive a part age pension, we would set the multiple higher, perhaps at 10 times average earnings and add this to the thresholds.”
Any reduction in income from this, it said, could be met by spending superannuation benefits or by using the pension loans scheme.
“This initiative could be introduced over a 10-year period to give people an opportunity to get their affairs in order,” it said.
The paper also suggested increasing rent assistance for age pensioners as the current rental assistance is inadequate.
Most of those who support this idea need to be put in a nursing home. What a lot croc. Go back to kindergarten
Leave the current system alone,there are too many changes as it is.It could be overcome by gifting the home to the kids and increasing the pension after the 5 year gifting rule expires.Confirms actuaries don’t have the charisma to be an accountant.
I think this would have to be introduced at some point and I like the idea of phasing it in over a long period. I have a client who has a $4.5m home and is on the full age pension. I don’t think this is right when I have clients who live in a $500k home and have lost the age pension recently due to the changes in the assets test. The threshold needs to be a lot higher than $500k when you look at the value of properties today in the big cities compared to the country – at least $1m.
$1/2M is too little but the principle is correct.
Watch too many people live miserable on an age pension so their kids can inherit a fortune at the taxpayers expense. Family home that is 50% more than the average price of a home in Sydney would throw in a threshold of about $1.5M. If so, then take the principles espoused by Michael Rice but have a more feasible base to work from. The multi million dollar property occupiers will cease getting a pension and have to get their kids to pay up or miss out.
Nothing wrong with the proposal at all Michael……I believe this is fair and try to deter the rotten/unethical citizens who are trying to hide all their capital in their residence and claiming to be poor, so have access to tax payers monies…….centrelink entitlements that is!!!!
Left wing loonies
agree typical one sided argument. The $3M home is a value not cash don’t these lefties understand that!