A new proposed law will encourage more pensioners to rightsize in the hopes of helping free up housing stock for younger families.
The Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022, introduced by Minister for Social Services Amanda Rishworth, would provide pensioners an additional 12-month asset test exemption on their home sale proceeds.
Under current rules, proceeds are exempt from the social security assets test for up to 12 months, with another 12-month extension available in times of extenuating circumstances such as delays due to disasters.
With the proposed changes, the asset test exemption will now be 24 months and the further extension for extenuating circumstances will remain in place.
The changes will give more time for pensioners to purchase, build, repair, or renovate their new principal home before their pension get impacted.
Furthermore, the deeming rate on principal home sale proceeds intended to purchase a new home will be significantly lowered from 2.25% p.a. to 0.25% p.a.
This is part of the government’s commitment to freeze deeming rates at current levels for two years to June 2024.
For context, the deeming rate refers to the assumed rate of return on financial assets that is used to determine pension amounts.
Ms Rishworth said this proposed policy, if successfully implemented, would help boost the number of pensioners who plans to rightsize.
“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,” she said.
“These changes will give pensioners more flexibility to find a suitable new home and it will hopefully free up larger housing stock for younger families who need it.”
Property Council of Australia executive director of retirement living Ben Myers said the proposed changes make sense on different perspectives, as it would incentivise older Australians to unlock their home equity and right-size into more suitable housing options.
“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,” he said.
A study in 2015 by the Productivity Commission found that over 90% of Age Pension recipients that owned a house could leverage the equity in their home to achieve a “modest retirement standard” for the rest of their lives.
However, a general lack of affordable downsizing options due to red tape and inconsistencies with local land planning policies make it hard for these pensioners to find a suitable home.
“State and local governments are making it very hard to finance and develop new retirement communities in suburbs and regions across Australia,” Mr Myers 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.”
Real Estate Institute of Queensland (REIQ) CEO Antonia Mercorella said the changes would make rightsizing an easier financial decision for older Australians.
“While ageing in place is a factor, we know high transactional costs is one of the reasons older Australians are reluctant to sell and are holding on to their properties, for far longer than is ideal for their circumstances,” she said.
However, more can be done to help further encourage older Australians to help free up housing stock and move into better-suited homes.
“We called for stamp duty exemptions for older Queenslanders arguing that the removal of this costly tax would provide senior citizens with an opportunity to move into more age-appropriate housing and create more housing options for young, growing families,” Ms Mercorella said.
Photo by Andrea Piacquadio on Pexels.
Collections: Mortgage News