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3 May 2024
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Please check our article on the merits of including the value of the principal place of residence in the pensions asset test, subject to a high threshold to ensure it only captures the 'wealthy'.
Then add your opinion in the survey.
This week, the OECD Survey on Australia said:
“Age pension payments have risen more markedly than other social benefits, such as those for the unemployed. In addition, the prolonged boom in house prices have inflated the wealth of many pensioners without impacting their pension eligibility given that the value of the family home above a modest threshold (AUD210,500) remains outside the means test. Half of the government’s spending on the age pension goes to people with assets more than AUD500,000. Indeed, the recent Retirement Income review highlighted that the distribution of age pension expenditures is much less skewed to lower wealth quintiles than other payment.”
There are only two questions, it will take only a couple of minutes.
The reverse mortgage makes sense. In your younger years you work and pay down the mortgage. In your retirement years you live off the tax free capital gain that your house has accrued. However there would need to be some sort of statutory not for profit body set up to offer the reverse mortgage. No one should make a profit out of it in my opinion. Regarding the threshold one option would be to base it on a calculation of life expectancy and an estimated annual cost to live comfortably plus an additional buffer to cover the unknown unknowns.
Regarding ""there would need to be some sort of statutory body set up to offer the reverse mortgage"" There already is and its called Centrelink. Refer their Pension loan Scheme !
And it offers something few people wants - isn't it typical?
Think your right GLeung. Also I believe the commercially available reverse mortgages are even worse than the centrelink option !!
Gotta confess I'm lost here. As Andrew says, a house is a house. It generally produces no income whether its worth $250,000 or $2.5MM. I live in a regional area so multi million dollar homes are not a problem (!) but I can see if someone has lived in a capital city area with high growth for a number of years they can have a valuable asset but little income, particularly if most spare cash has gone towards the mortgage rather than building up the super kitty. Farmers have had the same problem in the past - asset rich bit income poor. So lets suppose we limit pensions to those with houses worth less than say $1MM just for example. If someone has a house worth $1.1MM and $0.5MM in super what do they do? Sell their house? Hardly rich bastards worthy of shoddy treatment. The only thing I can think of would be to recover the difference via some form of death duty/inheritance tax based on the capital gains accrued in the estate; that is after the owners no longer need the house. Not going to win many elections with that option though. And a fertile ground for numerous loopholes no doubt.
Why are the young paying taxes to fund pensions for people who own houses the young could never afford, and then that same house gets handed down as an inheritance to the wealthy owners children. They say Australia rewards hard work, if that was so why do you get taxed more the more you earn, while houses go up tax free faster than the young can earn, only to benefit the owner and their dependents
Bill. Those houses have been bought by people who in younger years paid tax. So if they have earned it they should be able to or family benefit from those earnings years let. You get what you work and save for one way or another. Maybe they have gone up in value but who's fault is that, theirs. No, they are just benefiting from it. Good luck to them. Envy is not a nice word.
Nothing to do with ""Envy"". All to do with fairness and we should be taxing unearned income and reduce taxing earned income.
A working person on a modest income who bought a modest house in the eastern suburbs of Sydney in the 1980s would have paid about $150,000 (and paid 15% or more interest). I know because I bought a unit in clovelly in 1986 for $ 74000, so this is not hypothetical. That purchase alone means I will never be eligible for the aged pension, a fact I am infinitely grateful for. Now that they are elderly and retired their house might be worth about $3million but their means are still those of a working class family who just happened to buy in an area that has appreciated markedly. Their home is a home. It is not an investment or a tax rort, it is a home. The proposition is that they should be forced to sell at a time in their life where stability is critical to their quality of life, be disconnected from their community when they most need that connection and leave their home of many decades incurring substantial cost in stamp duty, conveyancing, removal costs, agent fees etc and all the attendant stress. The alternative, eat into their capital through reverse mortgages is a source of insecurity and stress. The pension is a pittance and there are far more people exploiting the disability pension and a myriad of other social welfare payments than pensioners. No matter what a persons house is worth it is beyond me how anyone lives on the current aged pension. Even a beer at the pub or club would be a rare luxury. A little more thought, compassion, proportionality, nuance and balance is needed in this discussion.
Andrew, So very well put.
Agreed !!! There is always someone , or some organization, thinking up ways and means to defraud , yes, defraud, rightful owners of their own homes after a lifetime of honest labour and self sacrifice to achieve home ownership. An example; the current W. A. government is finalizing legislation to "Kick a Granny Out of Her Flat". Take care, Ramon .
Agree. Too many exploit the welfare system which "wealthy" pensioners who own their home having paid it off over forty years are now looked upon as the means to fund ever increasing social welfare. Take a look at disability pensions, open to the most appalling exploitation by so called family.
Graham you know that I have agreed with this policy change for many years. House prices have opened up real inequity in this country and those with means need to pay for their retirement so there is more to fund those that really need it. Regards
Make the limit $700,000 or 20 % above the medium value for the local area, and give a two year phasing in period. Also make such events that would lead to downsizing, exempt from State Stamp Duty. The States would still gain revenue from the duty imposed on the higher priced property anyway.
Yes, I think the limit has to be connected to local area values
"...given that the value of the family home above a modest threshold (AUD210,500) remains outside the means test. " What is this $210,500 threshold? I thought the entire family home is exempt from the asset test. I like the idea of an universal pension which would allow those in need some dignity and reward those who have worked hard to achieve an independent retirement. With the current system, I believe there should be a ceiling above which the age pension should be gradually reduced. Setting the ceiling is going to be complicated because house prices vary through out the country. I would suggest something like a multiple of median house price in a particular capital city say 30 years ago. For example, for Sydney, the ceiling would be approx. $2.5m, being 30 times of the price in 1981 ($78900). For Brisbane the ceiling would be approx. $1.5m.
Hi C, yes, the entire family home is exempt, but what the OECD is referring to is mentioned in the article. The pension threshold amounts are about $216,000 (now) higher for non-homeowners.
Pensions are for those in need. Millionaires with house of grandeur who have manipulated their status to receive a pension should be called out. The LNP government is complacent and fear to attack their voting base by cutting out these rorts.
It does seem unfair that the pension is rewarded to those who are lucky enough to still own a home in old age. Divorce, illness, bankrupcy can lead to losing your home owner status later in life. Maybe you have lived frugally and aggressively saved into super to compensate for the loss but the government only allows you an extra $200K in super before you start losing the pension. With average rents for little units close to $25K a year this only gives you about 8 years of renting. Clearly non home owners should be allowed to have more assets in the assets test when calculating pension eligibility.
Exactly, Iniquitous at present
Within a decade or so, compulsory super balances for new retirees will likely ensure very few get the full aged pension. Compulsory annuities will stop retirees disposing of super to get the aged pension. Problem solved.
Hi John, another guaranteed business like private health insurance, green slip, etc.? Thank you very much.
Pension is needed for those who are not millionaires Pensioners who rent live below poverty line
Hi David, agree subject to some assets or income test. My article is not directed at pensioners who do not own their own home and rent.
It's strange to me we worked went without to scrimp to buy a house paid rates insurance painted it paid upkeep and now prices have gone up so if we sell to as they say down size the prices even to down size have gone through the roof or retirement villages with their strings and are owned by big corporations where we loose our interdependence. They hound us but large corporations can get gov handouts e.g. job keeper for millions but jealous people want our house we didn't get child care subsidies etc paid high interest rates etc worked hard and we are the bad guys
The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?
The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?
Since the introduction of compulsory super, the industry has pushed its members to put as much as possible into super. It has been a disservice to anyone entering retirement who could have owned a home instead.
The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.
Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.
How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.
Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise.
Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.
The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.
Growth investors are using Buffett to justify buying blue chip stocks at almost any price. It’s a recipe for potential disaster, as investors in market darlings like CBA and Cochlear may be about to find out.
With Australia’s population moving through the fastest rate of growth since the 1950s, our cities and towns are naturally densifying. This is a look at the latest trends and how they will impact the property market.
We're nearing the end of the financial year and it's time for SMSFs and other super funds to make the most of the strategies available to them. Here's a 24-point checklist of the most important issues to address.
Nvidia has taken the world by storm and is now the third largest stock on the planet - larger than Meta, Amazon, and Alphabet. Here is the latest take on Nvidia from a fund manager who first invested in the company in 2016.
Despite being richer, surveyed measures of happiness have been flat to falling in Australia. Some suggest we should focus less on GDP and more on broader measures of wellbeing, though there are pros and cons to that approach.
In an era where growth companies dominate and the likes of Nvidia grab all of the attention, dividend paying stocks are flying under the radar. Some of these stocks offer compelling prospective returns.
After more than a decade of pitiful yields, bonds are back offering better prospects for income investors. What are the best ways to take advantage of the market inefficiencies in Australian fixed income?