Want to help the housing crisis? Bring back the pensioner savings account

When you downsize your home it’s easy to downsize your pension too. In fact, it’s not hard to lose it completely. It is a problem that has been around for a long time but has been worsened recently as a result of the changes to the pension asset test in 2017 and further increases in property prices.

The Productivity Commission identified the issue back in 2011 in their Caring for Older Australians Report which recommended that a pensioner savings account be established so that full and part pensioners who downsize could contribute proceeds from the sale of their home and keep it exempt from pension assets and income tests.

Part of solving the current housing crisis needs to be removing financial barriers for people who want to downsize.Credit: AFR

In the 2013-14 budget, a three-year pilot called Housing Help for Seniors was announced to enable seniors to invest 80 per cent of the proceeds from the sale of their home up to a maximum of $200,000 into a special account.

The account was to be exempt from pension means testing for 10 years, provided there were no withdrawals. The pilot was set to commence on 1 July 2014 but didn’t and was cancelled as part of the 2014-15 budget.

In 2017, changes to the pension asset test saw an increase to the amount of assets full pensioners could have together with a doubling of the taper rate. The taper rate is the amount at which your pension reduces beyond the threshold, before 2017 it was $1.50 per thousand dollars of assets – since then it has been $3.

While $3 per thousand dollars of assets may not seem punitive it equates to a negative 7.8 per cent, per annum return on assets above the threshold. It makes replacing the pension you are losing almost impossible and turns downsizing from a great way to free up equity into a great way to spend it.

Let’s look at an example.

Pam is thinking about downsizing from a home worth $1 million, she has $200,000 of investments and $25,000 in personal assets. Pam currently receives $37,024 of income made up of $29,024 a year in age pension and $8000 from her investments.

The home Pam is looking at buying is $500,000 and she will have $50,000 of moving related costs. If she downsizes she will have $650,000 of investments earning $26,000 a year and zero age pension, which is $11,024 a year less income than if she stayed at home.

If Pam could exempt $200,000 through a pensioner savings account she would retain $15,510 a year of her pension and combined with $18,000 from her investments would have an income of $33,510 per year – still slightly less than if she stays in her current home.

If the pensioner savings account enabled her to exempt all proceeds from her home she could continue to receive the full pension and have $11,000 a year from her investments giving her $40,000 a year of income. In the longer term the pensioner savings account could assist Pam to meet the cost of aged care.

Part of solving the current housing crisis needs to be removing financial barriers for people who want to downsize. Since the majority of people over 65 receive a pension, that would seem like an obvious starting point and the pensioner savings account could be a simple but effective way to do it.

Rachel Lane is the author of the bestselling book Aged Care, Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker. The new edition of Downsizing Made Simple is now available online.

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