As many readers will be aware, the family home is exempt
from means testing for Social Security benefits, including the age pension.
But this hasn’t always been the case.
When the Commonwealth first introduced the age pension back
in 1909, the family home was included as an asset. However, in 1912 the Government
of the day made a decision to exempt the family home from the assets test.
And that is the way things have been for the past 107 years.
But the big question is, ‘will
the family home always be exempt?’
Every so often the conversation turns to including all or a
part of the value of the family home in the assets test for Government
benefits, including the age pension.
Just in the last couple of weeks, the Institute of Actuaries
of Australia used its pre-Budget submission to argue that the value of the
family home that should be exempt from means testing should be capped.
This is not a new idea.
Over the years, there have been many suggestions that the age
pension, in its present form, is unsustainable in the longer term and the way eligibility
is assessed needs to change. Some suggestions include having the entire value
of the home included as an asset, while others suggest that the value of the
home above a certain threshold should be assessed.
In its 2015 Research Paper ‘Housing Decisions for Older Australians’, the Productivity
Commission modelled the likely effect of including all, or a part of the value
of the family home in the assets test. Certainly, the higher the value cap threshold,
the less pension recipients were likely to be affected.
Would including all, or a part of the value of the family
home mean the end of the world for current and aspiring pensioners?
It would certainly be disruptive; however, it wouldn’t
signal the end of the world.
Having said that, I believe it would be a very brave
Government that would introduce such a measure. And perhaps it is something
that might be introduced at the beginning of new parliament so that those
affected have three years to get use to living in a substantially altered
However, Australians are a very resilient bunch and I am
sure we would adapt.
If a Government introduced means testing of the family home,
many pensioners would suffer a drop in their pensions. They would then be
forced to either live off less or generate income from other sources like the
equity in their home.
This could be achieved in a number of ways including
downsizing, moving in with the kids, moving to a cheaper property, taking in
boarders or renting out a room through Airbnb. Or perhaps our pensioner with
their now reduced income might participate in an equity release scheme like a
reverse mortgage or the soon-to-be-improved Pension Loans Scheme offered by the
Federal Government. The devil would certainly be in the detail!
One thing is for certain – change is constant.
We need to be informed of developments, express clear and
logical arguments in favour or against change, and be open-minded and adaptive when
decisions we don’t like are thrust upon us.
PK believes people have the right to accurate, affordable and unbiased information that addresses all aspects of their preferred retirement lifestyle, thereby giving them the opportunity to make informed decisions that will empower them to live out their lives with dignity, certainty and security.