Monday, April 27, 2015

Means-testing the home could boost pension, study says

Including the family home in the pension assets test could be a political plus if handled properly, a new report suggests.

Calculations by the Centre for Independent Studies suggest that assets-testing the family home and encouraging retirees to borrow against it in order to get the pension could boost typical pension incomes by about $6000 per year while slashing the pension bill by $14.5 billion.

"It could be popular if it's explained carefully," said Matthew Taylor, one of the authors of the report to be released on Monday. "Pensioners would have to overcome their emotional attachment to their homes. They would need to see that they are not just places to live, but untapped assets."

The plan drawn up by the pro-free enterprise think tank would treat family homes the same as any other asset for the purpose of the test. Non-home owners with assets would no longer get lower pensions than homeowners whose assets were tied up in their houses.

The government would create strict rules governing the use of reverse mortgages and then encourage retirees to use them by "deeming" the income they could have got from borrowing against their homes and using it to cut their access to the pension.

The mortgages would allow retirees to borrow up to 80 per cent of their home's value with set fees and a government guarantee that they would not be forced out of their home. The government already runs one such scheme – the pension loans scheme – but it is restricted to non-pensioners wanting to borrow up to the limit of the pension and is little used.

A simpler means test would cut the pension by 60 cents of each extra dollar dollar earned or deemed to be earned rather than the present 50 cents.

The centre believes the changes would force 70 per cent of full pensioners on to the part-pension and between 24 per cent (singles) and 32 per cent (couples) off the part-pension altogether.

They would also allow small increases in the full pension to the Association of Superannuation Funds "modest but adequate" standards of $23,469 per year for singles and $33,766 for couples.

The standards allow nearly $19 per week for "cinema, plays, sport and day trips, $25 per week for "lunches and dinners out" and "$36.97 per week for "domestic vacations".

Mr Taylor said the biggest obstacle might prove to be convincing retirees  that they should use much of the value of their homes rather than pass them on.

"It's noble to want to pass on homes, but completely exempting them from the assets test means homes worth half a million dollars or much more get passed on by retirees who are effectively using taxpayers' money to preserve the asset."

Growing life spans meant an increasing number of children had little use for inherited homes, often receiving them in their fifties when they had children of their own.

"It would need a cultural change, and the government would have to build a case, but it would make the pension sustainable," he said.

In The Age and Sydney Morning Herald