Encouraging more Australians to access equity in their homes combined with changes to stamp duty and the Age Pension could give asset-rich, income-poor retirees a valuable income boost and help free up more housing for young families, a new paper published by the Actuaries Institute yesterday suggests.
While more than 80% of people currently aged 65 to 74 live in their own home, many of these ‘asset-rich, cash-poor’ retirees are living more frugally than they need to.
“More Than Just a Roof: Changing the Narrative on the Role of the Home”, a Dialogue Paper written by actuary Andrew Boal, argues that there is a need to change the narrative so that it is more acceptable to access and spend part of the equity that has been built up in the home.
Mr Boal, who is also the Institute’s Retirement Strategy Group chair and a partner in Deloitte’s Superannuation & Investment Practice, said, “It’s time for us to reconsider the role of the home as a fourth pillar of our retirement income system – alongside the Age Pension, superannuation, and voluntary private savings – which could be treated as another financial asset to fund retirement lifestyles.
He noted, “While most retirees own their own home, 60% retire with less than A$250,000 ($166,000) in their super. As a result, they’re often living more frugally than they need to. But this doesn’t need to be the case.”
The paper says that providing greater information and education about how people can better access part of the equity in their home as part of broad retirement planning would help change the existing ‘nest egg’ mindset.
It suggests several key policy reforms that the government could undertake, including:
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Removing or refunding stamp duty for over 55s who downsize their homeowners
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Extending access to downsizer contributions to superannuation to also include amounts released through an equity release scheme, such as reverse mortgages
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Relaxing the Age Pension means test for part of the value of equity released from the family home when it is sold (eg. A$300,000 per person/A$600,000 for couples)
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Providing Age Pension means test relief on money accessed through home equity release schemes up to the same cumulative limits
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Gradually including part of the value of the family home, above a reasonable threshold, in the Age Pension means test.
Mr Boal says that any policy changes would need to be phased in over time and be accompanied by strong regulatory frameworks, including clear disclosure requirements and supporting consumer protection.
He also said, “If retirees accessed 20% of the A$1.3tn they hold in home equity, it would unlock about A$260bn to help fund what could be 25 to 30 years or more in retirement.”