Peter Yeend
Introduction
The Government announced in the 2013–14 Budget a trial of a new housing assistance arrangement for some age pension recipients who choose to downsize their residential home into smaller, more appropriate, accommodation.[1] It is to be a trial and refers to persons moving into a retirement village unit or a granny flat.
Pilot scheme details
The scheme is quite simple and will allow eligible age pensioners to ‘quarantine’ proceeds from the net sale proceeds from a change of a residential home of up to $200,000 in a special account. Income from the account will be exempt from the pension income test and the asset from the assets test for up to ten years, providing there are no withdrawals from the account. The home must have been owned for 25 years and at least 80% of the proceeds of the net sale, that is, after the purchase of the replacement residence, must be placed into the special account.[2]
Origins of the pilot proposal
The Government’s Advisory Panel on the Economic Potential of Senior Australians presented the issue of too much unutilised assets being held in residential homes in its 2011 report.[3] In the Government’s response, it promised to consider housing issues facing older Australians.[4] The Productivity Commission (PC) also raised the issue of pensioners being adversely affected by the sale of a residential home in its 2011 report Caring for Older Australians.[5] The PC proposed a special age pensioner savings account scheme to exclude house sale proceeds from the pension income and assets tests.[6] However, the PC proposal was presented along with a proposal to remove the exemption of the residential home and amounts held in residential aged care accommodation bonds from the assets test. The Government, in its Living Longer Living Better (LLLB) aged care reforms, did not take up this recommendation.[7]
Are age pensioners affected by income or assets?
As at March 2012, some 12% of all age pensioners (272,700) were paid a part–rate age pension due to assets.[8] In contrast some 28% (635,000) of age pensioners were paid a reduced rate due to income, leaving 60% (1,357,800) on maximum rate pension.[9] As such far more age pensioners are on a reduced pension due to the income test than the assets test. The assets test cut–off limits for homeowners are now quite high; for a single person $731,500 and for a partnered couple $1,086,000 (combined).[10] The residential home, whatever its value, is not counted as an asset.
Who may benefit from the proposal?
Age pensioners with income or assets on either the maximum rate or a reduced rate may be able to benefit from this proposed trial, either in maintaining a higher rate of pension or just retaining a pension. Retaining a pension is important for many as it also provides a Pensioner Concession Card.[11]
Will many take the offer up?
The requirement to retain at least 80% of the net proceeds of the residence sale and purchase in the special account may be quite onerous for some, especially those hoping to realise some capital from the downsizing process. It is hard to imagine many will be willing to lock that much money away to take advantage of this option. For some pensioners already on a reduced rate, it may be not worth the effort to lose access to that capital just to hang on to the pension. Not being able to make withdrawals is quite inflexible. The big hurdle for all will be the requirement that 80% of the net sale of the 25 year residential home must be placed into the special account.
The elephant in the room is the issue of whether this initiative is appropriate. Pensions are means tested to target assistance to those with lesser means. If a person can access value from a property sale by downsizing, it would appear reasonable that they should use their own resources first, rather than calling on the taxpayer to provide a pension or a higher rate of pension. This is one of the fundamental tenets of the Government’s LLLB aged care reforms, that is, those with greater means should make a greater contribution.
[8]. This includes homeowners and non–homeowners.
[9]. Ibid.; Senate Community Affairs Committee, Answers to Questions on notice, Families, Housing, Community Services and Indigenous Affairs Portfolio, Budget Estimates 2012–13, 28 and 29 May 2012, Question 76, accessed 15 May 2012.
[10]. These asset test cut–off limits apply from 20 March 2013 and refer to the limits above which no pension rate is payable.
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