The Australian’s Adam Creighton claims that some wealthy seniors are deliberately ‘upsizing’ to more expensive homes in order to receive bigger Aged Pension payments:
Older Australians are buying more expensive homes in retirement to hang on to the Age Pension, according to experts who say pension eligibility rules are causing nationwide over-investment in housing.
Part four of On the Fence, a podcast on the housing market, looks into the pitfalls of downsizing, navigating the pension assets test and the rise of “elder abuse” with Heidi Schwegler, a financial planner at AHS Financial, Ian Yates, head of the Council for the Ageing, and Megan Soloman, a psychologist from Relationships Australia NSW…
“(People) feel as though it is their right, I will crawl over hot coals to get $1 of pension and if that means I have to sell my home and buy a more expensive home, then I will,” Ms Schwegler said. Because the principal place of residence is exempt from the asset test that determines eligibility for the Age Pension, “they might throw $50,000, $60,000 at a renovation just so they can get on to the assets test and get an Age Pension”.
Mr Yates said the pension and seniors health cards were “things people do grab hold of”…
“People will say I’ve got an average kind of home, I’ve got my financial assets, and I don’t get the pension or only a little bit. And my mate who’s worth exactly the same but (has) invested heavily in the house, he’s getting a full Age Pension. That’s not fair,” he said.
“Our tax system encourages people to over-invest in housing and not invest properly in their retirement income.”
The retirement system encourages this type of behaviour because it only counts financial assets in the means test for the Aged Pension.
The obvious solution is to:
- Including one’s principal place of residence in the assets test for the Aged Pension at some point in the future (e.g. 1 July 2022), thus allowing current retirees and prospective retirees adequate time to make arrangements; and
- Raising the overall pension asset test threshold as well as the base rate.
Under this approach, house-rich pensioners choosing to remain in place could continue to receive an income stream as they do now under the Aged Pension via the Pension Loans Scheme, but with less drain on the Budget and on younger taxpayers. But they would similarly be incentivised to move as the family home would no longer be a tax free shelter.
The solution is obvious but politically tricky, which means it won’t happen.
