Pensioners should use the house to fund their retirements: Economists

Should pensioners have to use home equity to fund their retirements?

Should pensioners have to use home equity to fund their retirements? Photo: Getty

Economists and lobby groups have called for the family home to be used to fund retirements after an outspoken backbencher’s proposal for first-home buyers to use superannuation for a deposit.

Speaking to The New Daily on Monday, Liberal backbencher Craig Kelly said in return “there would be some discount of the family home that would be counted in the asset test”.

Housing poverty

His call gained support from several commentators, who saw rising numbers of non-home-owning retirees and the house price explosion of recent years as a problem needing to be addressed.

The Grattan Institute’s Brendan Coates said the rising cost of housing meant homes could not remain exempt under the assets test.

“When a home was valued at three times average yearly earnings, then it was OK. But if a house in Sydney is worth 12 times average earnings, then it is not viable to exclude it from the assets test,” Mr Coates said.

“In that situation, people need to start drawing on the value of their home to fund retirement.”

A limit of around $500,000 could be set as the maximum value of a home to be free of the assets test, with the excess to be included.

People prepared to hold on to their home regardless had the option of “borrowing twice the value of the age pension” against the home under existing rules, which allow the resulting debt to the government to be repaid on the sale of the house or death, Mr Coates said.

Start saving early

Nicki Hutley, an economist and partner with Deloitte, said superannuation should not be used to fund a home deposit.

“We should encourage younger people to start saving for retirement to build balances early,” she said.

“There is a risk by putting money into a home from superannuation that if something goes wrong, there would be an inability to recover the money for retirement.”

However, she supported the idea of factoring the value of a home beyond a certain cap into the assets test.

“People should use valuable assets to help fund retirement and if you don’t want to then you are penalised,” she said.

Devising a cap would be complicated and could involve formulae including the number of bedrooms and the number of residents in a home, she said.

Such a move would be politically difficult, but the government “would be forced into action as we can’t stop the ageing of the population”, she said.

National Seniors chief advocate Ian Henschke said rising rates of pensioner poverty were a big problem.

“One-third of women on the pension live in poverty and one-fifth of men, and not owning a home is one of the main drivers of poverty among pensioners,” Mr Henschke said.

Home ownership plummeting

“Twenty years ago, 89 per cent of retirees owned their own home. By 2050 that will have fallen to 57 per cent,” Mr Henschke said.

The upcoming retirement incomes inquiry to be run by Treasurer Josh Frydenberg needed to look at at the issue of home ownership and the pension.

“If you want to fix a problem you need a broad-ranging review to achieve the best outcome,” Mr Henschke said.

Paul Versteege, policy chief with the Combined Pensioners and Superannuants Association, said funding a home deposit through super was worth considering.

“In principle it makes sense to secure home ownership before investing in superannuation,” Mr Versteege said.

However, the idea had a hidden danger in pushing up real estate prices.

“The question is how much money do you want to have chasing real estate?”

Ian Yates, CEO of aged lobby group COTA said: “We have concerns about the use of super for unintended purposes. It’s really crucial for people to build superannuation balances early to take advantage of growth through compound interest.”

Likewise, Industry Super Australia CEO Bernie Dean agreed it would be detrimental.

“Allowing people to raid their super to buy a house would not only drive up housing prices, it would undermine the very purpose of Australia’s superannuation system,” Mr Dean said.

The New Daily is owned by Industry Super Holdings

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