Heffron SMSF Solutions director Martin Heffron told SMSF Adviser that the exclusion of the family home from tax and welfare means tests contributed to Australia’s housing affordability problem as well as creating a burden on younger taxpayers, making it a worthy subject for the government’s coming review of retirement income policy.
“It’s very expensive and fiscal sustainability is something the review is being asked to consider,” Mr Heffron said.
He added that while including the family home in the pension assets test could force retirees to sell in order to fund their living costs, placing sensible boundaries around the degree to which the home could be excluded was a preferable approach.
“Some principles or guidelines that I would support… [are] putting a maximum cap on the value of your home that can be excluded from the asset test, [and] any age pension support provided during the deceased’s lifetime that relates to the value of the home in excess of the maximum cap [can be] recovered from the deceased’s estate,” Mr Heffron said.
He clarified that any clawback mechanism would be restricted to the amount available from the estate, meaning retirees could not run up debts that their beneficiaries would be responsible for.
Among other policy levers that could be altered, Mr Heffron suggested lifetime rather than annual super contributions caps could be an effective way to ensure pre-retirees could up their contributions later in life when they had more discretionary income.
“I think lifetime contribution limits have merit — applying annual limits doesn’t really make sense to me and results in several micro policies, and additional complexity, to deal with the problem created,” he said.
“We already have lifetime limits for things like the small business CGT retirement exemption, so administratively we have already dealt with this and established the principle that lifetime limits for things are okay.”
So Kym, would you support removing the home from the asset test completely with no cap?
Not at all Martin. I think there should be a limit on what is exempt and thereafter, into the means test. All things in moderation makes the thin public dollar spread further.
We now accept limits on super concessions so why not the home?
The catch with the family home would be at what value do we set the cap. I can see the left and right of politics fighting over where the cap should be and also this would affect those people in Sydney and Melbourne significantly where house prices are a lot higher than the rest of Australia. But then again housing affordability is a problem in Melbourne and Sydney not the rest of Australia.
Having said that I think both sides of politics would be too frightened to touch the family home in this way as they would see it as political suicide.
Ge=reat Idea, why should a pensioner with a $2m main residence qualify for a full pension whilst a pensioner with a $1m residence and a $1m block of land or holiday home NOT qualify? Very unfair
Talk about unnecessary complexity. The suggestion to cap the home and then bank the “excess pension entitlement” until the estate is administered sounds like a mine-field. It is effectively putting reverse mortgages into the public responsibility where they don’t belong.
Lawyers will welcome a proposal such as this.
If price signals are to be sent, the cap is at an amount, the same as super has been magicked up, at a number (actuaries will be happy), and thereafter the pension is reduced. If that is unsustainable for the pensioner, then the property is downsized, etc
Don’t make this intergenerational. The grown-ups need to take responsibility for their own retirement welfare and, just as the national conversation needs to move on this whole “entitlement expectation” around the age pension, it also has to move on this entitlement expectation around the right to maintain any home and still draw public support.
Sacred cows are contributing to the carbon footprint…