Call to cut tax breaks for rich retirees

An expert says tax concessions for wealthy superannuation savers should be reformed rather than targeting the family home.

Actuary expert Michael Rice believes the government should expand the assets test thresholds for retired homeowners to unlock equity. Picture: Hollie Adams

The government should look to trim generous tax concessions for wealthy superannuation savers, worth more than $36bn a year, rather than aim to include the family home in the pension assets test, according to the Combined Pensioners and Superannuants Association.

CPSA policy manager Paul Versteege said the family home should not be included in the asset test because “the vast majority of people live in a modest house”.

The Australian on Monday revealed more than 250,000 retirees living in $1m-plus homes are receiving more than $6.3bn a year in Age Pension payments.

While Josh Frydenberg has ruled out including the family home in the assets test for the Age Pension, the first review of the ­nation’s retirement income system is soon set to collate a “fact base” that could serve as fertile ground for economic reform.

READ MORE: Elderly in $1m-plus homes claim $6.3bn in pension | Flaws in the home owner-pension argument | The pension should not be protecting mansions

Michael Rice, chief executive of actuarial firm Rice Warner and Australia’s top retirement income expert, on Monday said The Australian’s figures showed the government should expand the assets test thresholds for home owners to encourage pensioners to unlock the equity in their homes and make use of the government’s pension loan scheme.

However, Mr Versteege said including the home in the assets test was a red herring, as home owners were generally unable to liquidate more than 25 per cent of the equity they had in their house and that greater federal budget savings could be found by examining tax concessions for wealthy Australians.

“Our position is that the cost of the Age Pension is not onerous to the government at the moment. There are other areas in the tax and transfer system where efficiencies can be made,” Mr Versteege said.

“The government could ­address family trusts, for example, or look at tax concessions in the superannuation system. ­Putting $1.6m in superannuation tax-free is quite a lot of money.

“There are quite a lot of areas where wealthier Australian are still being subsidised.”

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Australia spends almost $50bn a year on the Age Pension, and tax concessions for savings and earnings in super cost the federal budget $36bn in forgone tax annually. According to the Grattan Institute, tax concessions on super cost well over 10 per cent of all ­income tax collections, and half of all the benefits of the concessions flow to the wealthiest 20 per cent of households.

“Our spending on super tax breaks is high compared to comparable countries, and is one of the few that is rising,” Grattan senior fellow Brendan Coates said.

Mr Rice said any political ructions over a move to include the home in the pension assets test could be cushioned by increasing the assets test threshold to $1.6m for home owners and non-home owners, which would mean only more expensive houses were captured by the test.

“A married couple of 67 living a normal life expectancy receive a benefit on the Age Pension of $800,000,” Mr Rice said. “If you have someone who’s living in a $3m home, and you give them $800,000, is that a good use of taxpayer money?”

Mr Rice said retirees in more expensive homes who did not want to sell their home to gain a pension could use the government’s pension loan scheme that allows retirees to draw down on equity in their home. Any debts could then come out of an estate when the family house is sold.