The latest proposal to introduce a Government-backed scheme allowing seniors to contribute half the annual value increase of their homes towards funding aged care is unnecessarily complex and expensive says Brenton Harris, financial planner and CEO of POPI.
The proposal comes from the Productivity Commissions latest report, and suggests "using some of the annual growth in the housing equity of older Australians to ensure higher quality options for aged care services and lower fiscal costs".
The Commission suggests this move could help cut Government spending by 30%.
Harris, however, says the proposal would be complicated and difficult to implement.
“Although the concept has some merit it poses many questions. First and foremost, where will the Government find the funds in the first place? We are talking about a percentage of the population currently at 13% expected to grow to 21-23%% by 2046,” says Harris.
Questions around how and how often the property will be valued and how the Government will deal with improvements made to the home by the owner also need to be considered, says Harris, as well as the possibility that house prices will go down or the market will be flooded with home owners selling their properties.
“Our younger generation is already faced with challenges of accessing the property market, will a scheme that forces them in retirement to use their home to fund aged care service discourage them from even starting in the first place? Property has long been the back bone for family security and wealth creation for generations, a loss of confidence in property could see more economic problems faced by our younger generation in years to come as they arrive at retirement without homeownership.”
Currently the Government is already a provider in the equity release market through the pension loans scheme, which allows seniors not eligible for pension to access capital tied up in real estate assets. Two state governments and a number of local councils also operate municipal rate deferment schemes linked to housing equity.
Incentivising investors to use already established wealth creation and retirement schemes would be a more sensible option than taking on the cost of funding a scheme such as the one proposed by the Productivity Commission, says Harris.
“The Government should stay away from such a complex and socially sensitive issue. Private investment is a much better solution for those wanting or needing help.”