Representative body, The National Information Centre on Retirement Investments (NICRI), has slammed suggestions that retirees, whose principal residence is valued at over $1m, should not receive the aged pension, but rather fund their own retirement using a reverse mortgage.
The suggestion was put forward by Christian charity group, Brotherhood of St Laurence, who said the government should: "include owner-occupied housing as part of the means test for the age pension for homes of high value, say above $1m. This could include arrangements for reverse mortgages so people can remain in their family home while drawing down on its equity to create an income."
But Wendy Schilg, director of NICRI, said it was concerned about the principle of "Australians being forced to fund their own retirement using equity in their primary residence".
"We should not expect Mr. and Mrs. Smith to lose their pension and be forced to sell part of their house to put food on the table. They have contributed to the taxation system all their lives and their house is so valuable not because they are rich, but because they have owned it for 30 years and property prices have increased.
"While I understand the intention behind the suggestion, I believe that the recommendation is misguided and will result in detriment to Australia's cash-poor, asset rich retires."
Following the launch of its reverse mortgage information service for consumers last month, NICRI, which represents retiree and consumer groups, said calls to date have shown that reverse mortgages can be a poor choice for some retirees.
"We have found that you have to be a certain type of person to take on a reverse mortgage," Schilg said.
"Some people dislike the compounding interest that eats into the equity of their home over time; others have wanted to sell their home and have encountered break fees in the tens of thousands of dollars.
Retirees are a vulnerable part of our community, and to assume that a reverse mortgage would be suited to everyone is just wrong."
According to 2008 The Deloitte SEQUAL Reverse Mortgage Study, mortgage brokers and other intermediaries are responsible for distributing nearly half of all new reverse mortgages, in a market worth $2.3bn.