Selling your home without risking your age pension

As retirement approaches, many Australians face the difficult decision of whether to sell their family home. For some, selling can be a smart financial move, unlocking the value of their property and providing them with extra funds to enjoy their retirement.

However, for those receiving the age pension, selling their home can have a significant impact on their entitlements. Therefore, it’s essential to carefully evaluate the financial implications of selling your home and seek professional advice before making any decisions.

As First National Real Estate Chief Executive Ray Ellis points out, “for many Australians, there will be impacts on your ability to continue drawing an age pension” when it comes to selling your home.

With that in mind, Starts at 60 explores how selling your home can affect your age pension and what you need to consider before making this important decision.

How selling your home can impact your age pension payments

For the purposes of the age pension, the family home is generally exempt from the asset test. This means that the value of your home does not count towards your assets and won’t impact your eligibility for the Age Pension.

What’s included in the assets test

Centrelink will include most real estate you own in your assets test. The only real estate asset not included is your principal home.

Centrelink includes real estate that you:

• rent out;
• leave vacant for any amount of time;
• let someone else live in for free;
• live in when you’re not at your principal home.

Although your principal home is not included in the assets test, proceeds from the sale of your home will count towards your assets, and this may affect your age pension eligibility.

However, following the passing of the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Act 2022, the duration in which you can utilise the sale proceeds to purchase or renovate your next home, without affecting your age pension was extended.

From January 1, 2023, the existing 12-month asset test exemption for principal home sale proceeds a person intends to use for a new home was extended to 24 months and deemed income on the exempt proceeds will be calculated using only the lower deeming rate.

Depending on your circumstances, you could get a further exemption of up to 12 months. The maximum assets test exemption period is 36 months.

This means that any portion of the sale proceeds that will go towards purchasing, renovating, or building your new home will not be counted under the assets test from the date of the exchange of contracts, allowing retirees to make the most of the sale proceeds and plan their next chapter without worrying about the impact on their pension payments.

For example, if you sell your home for $1 million, but are buying a new one for $800,000, only $200,000 will be included in your asset test. The same rule applies if you use the funds to buy, build, rebuild, repair, or renovate your new principal home.

It’s important to note that any extra sale proceeds held in a financial asset will be subject to the regular deeming rates and will impact your age pension payments.

If you’re building a new home, the land is also exempt for up to 24 months. This only applies if the land value is less than the amount you got from the sale of your home

The importance of professional financial advice

Selling your home can be a complex decision, particularly if you are also receiving the age pension. Before making any decisions, it’s important to seek professional financial advice to understand the potential impact on your entitlements. A financial adviser can help you navigate the various options available to you and ensure that you make an informed decision that best suits your circumstances.

Financial planner Chris Carlin from Master Your Money, says “it is important to reiterate with the high cost of living that if you cannot live on the Age Pension yet own your own home, don’t be afraid to sell your home and/or downsize to unlock equity/cash to meet your living expenses.”

Selling your family home can be a smart financial move for retirees, but it’s important to carefully consider the impact on your age pension entitlements before making any decisions. While the family home is generally exempt from the asset test, the sale proceeds may affect your eligibility and how much you can receive.

However, the recent legislation changes provide a longer exemption period for using the sale proceeds to purchase or renovate your next home without affecting your pension payments. It’s crucial to seek professional financial advice to understand the potential impact on your entitlements and make an informed decision that best suits your circumstances.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.