Federal Budget aim to assist seniors in downsizing misses the mark

by Mackenzie McCarty21 May 2013

A pilot program to assist senior Australians to downsize their home without affecting the Age Pension will be welcomed by some retirees - but the vast majority will be disappointed by the limitations of the scheme, according to DomaCom CEO, Arthur Naoumidis.

From July 1, 2014, those claiming the Age Pension who have lived in their current home for at least 25 years can downsize and invest the additional funds, capped at $200,000, in a special account. The funds invested and any interest earned, will be exempt from asset and income testing for up to ten years.

But Naoumidis says that, although he supports any initiative that is intended to improve choice for seniors seeking to access their housing wealth in order to fund their retirement, he doesn’t believe the current plan is the best path going forward.

“The appeal of the Housing Help for Older Australians’ pilot is likely to be somewhat limited, as it does not address the overwhelming desire of retirees to remain in their homes,” he argues.

Pointing to ABS reports that 82% of those aged 75 and over own their home outright and Australian Institute of Health and Welfare figures showing outright homeowners are more likely to intend to age in place, Naoumidis says the pilot plan is misguided.

“The key challenge for retirees seeking to improve their standard of living is to release some of their home equity wealth without selling their home and then having to move away from established and supportive social networks”, he says.

However, economic forecasting group, BIS Shrapnel, says that while analysis of census data does not yet reveal any major evidence of an increase in the rate of downsizing by retirees, with a relatively constant 75–76% of households with a household head aged 65+ living in a separate house over the last 20 years, this could easily change in the near future.

The percentage of 50 to 64 year-old households that have a mortgage increased from 23% in 2001 to 38% in 2011, which BIS Shrapnel senior manager, residential property, Angie Zigomanis, says suggests households will increasingly have a mortgage once the occupants reach retirement age.

“Unless the occupants elect to remain in the labour force, there will be an increasing number who are likely to sell out of their dwelling upon retirement to move elsewhere - or into a lower priced, smaller dwelling to reduce their debt.”