How will Hockey's pension changes hit the mortgage industry?

by Calida Smylie06 May 2014
Treasurer Joe Hockey announced on Friday that Australians born after 1965 will need to work until they are 70 to be able to receive the age pension, but mortgage experts are of mixed minds as to the effect it will have on the industry.

“The first thing that has to be said is that any impact from the increased pension age is still some years off – 21 years...There’s no doubt it will be felt in coming years but no drastic immediate effect,” Seniors First director Darren Moffat said.

But he believes the pension age increase could see more products emerge for older consumers who are not working and have trouble getting credit, Moffat said.

“The government is presuming that older people will suddenly find it easier to get work, but they will need to put policies in place to combat ageism. The government waving its wand will not stop people discriminating against older employees.

“A lot more people will find themselves at 65 will no job, no income, not able to access the pension and unlikely to be able to unlock superannuation. It’s likely the reverse mortgage and equity release industry will benefit from this. There doesn’t seem to be any other way.”

Moffat said the change will “certainly” prompt innovation in the reverse mortgage and equity release market.

But Rise High Financial Solutions director Marissa Schulze is not so certain the reverse mortgage market will benefit from the pension age increase.

Instead, she believes lenders will allow longer loan periods because borrowers will be working for longer.

“People normally take out a reverse mortgage after they retire and if people are retiring later then they may not need it as much as they normally do. There might even be a decrease in reverse mortgages.”

However, she contends the product may be needed for people who retire earlier, leaving a gap before they reach pension age.

“Although you would like to think that to retire you’d be in a good financial position to do so… A few different possibilities could pan out with this change.”

Home Loan Experts director Otto Dargan also believes it is a situation where “we’ll have to wait and see” what the consequences will be.

“I'd assume that more people would work until they are 70 so the demand for reverse mortgages would drop in the 65 to 70 age bracket. However, it could be that some people decide to retire at 65 anyway and use a reverse mortgage to fund their lifestyle.”

But Dargan said raising the pension age will make it easier for borrowers who are over 50 years old.

“Some lenders already consider retirement to occur at 75, however others ask for an exit strategy if the loan term will extend beyond the borrowers being 65 years old. Many people over 50 who have a mortgage intend to work past 65 years old anyway so it will just make it easier for these people to get approved.  

“It is a positive for our industry. I wouldn't say that it is a positive for people who are about to turn 65 though.”

The majority of financial institutions and associations have accepted the need for a pension age change but warn more support will be needed for older workers, such as access to further training, job flexibility, support, and career counselling.
Financial Services Council said it is time to end the notion of full-time retirement.

“By 2050 there will be 2.7 working Australians for every citizen over 65. We need to end the concept of full-time retirement. Australian’s remaining in the workforce for longer periods will stretch retirement incomes by supplementing superannuation through part-time work as well as reduce our nation’s skill shortage,” said CEO John Brogden.


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