Retirees and the property industry have welcomed a federal government initiative to encourage older Australians to downsize by extending the asset test exemption to two years and reducing the deeming rate on sale proceeds.
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It's hoped the initiative will help free up more houses for younger families.
Under the plan, pensioners wanting to downsize their home will have an extra year to buy, build or renovate a new home before their pension payments are affected by asset testing. At the moment, proceeds from the sale of a principle home are not considered under the assets test for a year, although a one-year extension can be considered in emergency situations.
Sale proceeds will also only be deemed at the lower deeming rate of 0.25 per cent instead of upper rate of 2.25 per cent.
More than 8000 pensioners downsized last year and it is hoped this number will increase if the changes are legislated.
Social Services Minister Amanda Rishworth said the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 would benefit thousands of pensioners and other recipients each year.
"We don't want people putting off downsizing to a more suitable home because they are concerned about the impact it could have on their payment rate and overall income," Minister Rishworth said.
Win-win
Describing the initiative as a "win-win" for older homeowners, governments and young families, the Property Council of Australia said incentivising older people to move into homes that require less maintenance and are designed to help people live independently for longer made sense.
Property council executive director of Retirement Living, Ben Myers, said countless government reports and reviews over the past decade showed most older peoples' wealth was locked up in the family home, so finding better ways to encourage them to unlock the equity in their home - and remove tax disincentives - was a good start in helping them help themselves.
"Incentivising older Australians to unlock their home equity and right-size into more suitable housing options, especially purpose-built age-friendly communities, is a wise move by government," Mr Myers said.
"Encouraging older Australians to right-size, not only contributes to healthier ageing, it's also one of the smartest and fastest ways a government can boost much needed housing supply for families."
In 2015, the Productivity Commission Housing Decisions for Older Australians report found the vast majority (more than 90 per cent) of age pension recipients who owned a house could leverage the equity in their home to achieve a "modest retirement standard" for the rest of their lives.
Lack of downsizing options
It found "a general lack of affordable downsizing options for older Australians, due in large part to the red tape and inconsistencies within state and territory land planning regimes".
Mr Myers said, then - as now - there was a need for broader action on housing supply, especially to encourage the supply of purpose-built age-friendly communities, to ensure people have affordable and accessible choices.
"State and local governments are making it very hard to finance and develop new retirement communities in suburbs and regions across Australia," he said.
"Unless Australia is able to better provide the housing supply and choice that our ageing population needs, affordability and accessibility will be an increasingly dire social and economic issue."
Mr Myers said industry research showed retirement village residents were not only happier, healthier and more actively engaged in their communities, but there were significant government savings because retirement living residents had fewer GP visits, significantly less hospital presentations and reduced length of stay (reduced falls/depression) and delayed entry into residential aged care.
Increase understanding
Association of Independent Retirees president Wayne Strandquist said the reduction was a very good move to help downsizing retirees and those downsizing in preparation for retirement.
However, he said many members were disappointed in how long it took banks to introduce increases to the interest rate they would get on deposits despite immediately putting up the mortgage interest rate. "We think the banks are using that delay to improve their margins," he said.
AIR is also calling for a national program to increase understanding of the retirement savings and income system.