Australian retirees should be able to utilise more of their home equity to provide for a more comfortable retirement, according to the Actuaries Institute.

Retirement strategy group chair and Deloitte partner Andrew Boal says his research showed that retiree finances are by and large too slanted to property which denies useful retirement income.

“While most retirees own their own home, 60 per cent retire with less than $250,000 in their super and, as a result, they’re often living more frugally than they need to,” Boal found.

To deal with that the national approach to retirement savings needs to change, he argues.

That would see housing being added as a fourth pillar to the current configuration which includes the age pension, superannuation and private savings, the institute recommends.

Currently more than 80 per cent of Australians aged 65 to 74 live in their own home and those retirees hold an estimated
$1.3 trillion worth of housing equity, the Actuaries Institute found.

However, many do not view their home as a financial asset that could be more actively managed beyond potentially helping to pay for future aged-care costs and as a bequest to children and heirs, it believes.

Unlocking 20 per cent of that $1.3 trillion in housing assets would deliver retirees an extra $260 billion to help fund another 25 or 30 retirement years.

The institute suggests a number of measures that would ensure retirees could free up housing capital without suffering reductions in superannuation or pension income.

A significant driver in the institute’s plan would be to enable home downsizing to be carried out without financial penalties elsewhere.

One measure suggested would include the removal or refunding of stamp duty on property purchases for over-55s downsizing.

Another would extend current measures, which allow a couple aged 55 or over to add up to $600,000 to superannuation after downsizing, to those of the same age group taking out reverse mortgages.

Currently those super contributions made through downsizing are not added to to contribution caps that restrict non-concessional contribution levels.

But they are added to the amount of money you have in relation to the assets test.

The institute is calling for those downsizer contributions to be made exempt, or partly so, from the assets test as an encouragement to older people to get out of big homes they no longer need.

The same measure, it believes, should be applied to reverse mortgage withdrawals made by retirees.

Although these measures would represent a giveaway from the budget, the Actuaries Institute suggests a quid pro quo arrangement that would help make up the difference.

Gradually, it says, part of the value of the family home over a reasonable threshold should be included in the age pension means test.

Politically difficult

That would be a highly controversial measure that would be difficult for governments to tackle, particularly following Labor’s shock loss in the 2019 election driven in part by planned hits on retiree income measures.

“These policy reforms could unlock billions of dollars to improve retirement living standards and at the same time help increase the supply of larger homes for young families, easing Australia’s housing supply issue,” Boal said.

Chant West research director Ian Fryer said the institute’s proposals did address needs in the retirement market.

“There are lots of disincentives for people to use the equity they have in their houses in retirement,” Fryer said.

The suggestions of using housing as a genuine fourth pillar in the retirement system had merit and the package of ideas would help people live a better retirement, Fryer said.

Independent economist Nicki Hutley said financial issues like stamp duty were not the main restrictions in downsizing.

Other factors at play

“If you move from a family home to a townhouse or apartment often we find that because of zoning laws it is hard to find a property that gives you enough spare change to make it worthwhile,” Hutley said.

“We’ve got an ageing population and we know what the impact of that is going to be on the budget bottom line.”

As a result allowing people to keep downsizing monies outside the assets test system would be a move in the wrong direction.

“I worry that people are sitting on assets to pass on to their kids and I don’t know that we should be encouraging that,” Hutley said.

Putting housing into the assets test system above a reasonable buffer would also be desirable in the longer term, Hutley said.

However there were no easy housing fixes.

“When it comes to housing everyone is looking for silver bullets and low-hanging fruit and they just don’t exist,” Hutley said.

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