Pensioners have been provided with further incentives to downsize their homes to enhance “their retirement lifestyle” while freeing up housing stock for younger families.
The Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Act 2022 passed through the Senate on Friday, November 25 and is expected to benefit thousands of pensioners by reducing the impact that can come with selling and buying a new home on income support payment rates.
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 will be extended to 24 months and deemed income on the exempt proceeds will be calculated using only the lower deeming rate which is currently 0.25 per cent.
The recent changes will provide recipients with more time to purchase, build, rebuild, repair or renovate a new home without the stress of their pension payments being impacted.
BREAKING: The senate has passed the legislation incentivising pensioners to downsize. It’s passage will benefit thousands of pensioners and other income support recipients each year by reducing the impact of selling and buying a new family home on income support rates.
— Amanda Rishworth MP (@AmandaRishworth) November 25, 2022
Minister for Social Services Amanda Rishworth said it was important pensioners were able to downsize without facing roadblocks in the process.
“More than 8000 income support recipients took advantage of the existing 12 month asset test exemption last year,” Minister Rishworth said.
“By giving people more time to purchase or build a new home, more pensioners who want to downsize will be incentivised to do so, freeing up the equity in their home and enhancing their retirement lifestyle.”
The move was met with mostly criticism on social media with many questioning the benefits for pensioners.
You know what would actually help the housing supply issue? Banning people from owning more than one investment property. How about we do that? Also #RaiseTheRate
— Jessii Bee (@HippopiJ) November 25, 2022
New good news for pensioners transitioning between homes. Congratulations on this worthy and welcome initiative. The Home Equity Scheme too, should prove beneficial. However, the pension HES moves very, very slowly by those managing the paperwork.
— Peter Sinclair (@AussieSage) November 27, 2022
To downsize? What about helping older Australians who are left renting due to job loss, unemployment or financial abuse PURCHASE their own homes
— Melissa Gillian Marsden (@MelMarsden96) November 25, 2022
Sure, this could help the wealthy who have homes that are paid off or close to it. What’s others who don’t have a house and are on income support…? Perspective please? For the love of goodness… some perspective PLEASE?!
— Overdramatic Leaf ???? (@nxvoyager) November 25, 2022
Although the legislation has received somewhat of a frosty reception, CEO and co-founder of Bridgit, Aaron Bassin, recently shared his financial expertise with Starts at 60 regarding some of the incentives that can come with downsizing.
“Downsizing is an appealing option for many people looking for a lifestyle change,” Bassin said.
“Not only can you use the sale of your home to fund the lifestyle you want, but there are also a range of financial incentives that make downsizing a good investment in your future, particularly if you’re a baby boomer.”
Some on the benefits of downsizing that Bassin shared included the following:
● Downsizing frees up equity: The difference between the sale price of your old home and your new home can be a substantial amount of money you can use to fund your future.
● Reduction in living costs: Large homes often incur high maintenance costs, so downsizing brings down everyday household operation costs, giving you the opportunity to allocate your savings towards better things like holidays and the grandchildren.
● Superannuation benefits: Superannuation benefits via the Australian Tax Office’s Downsizer scheme, which allows you and your spouse, even if that spouse is not the homeowner, to make tax-free contributions up to $300K to your respective super funds for those who are over 60 years old and if you’ve owned the home you’re selling for more than 10 years. Those funds can then be withdrawn tax-free at retirement.
● Family inheritance: Downsizer contributions can also benefit family inheritance; if you use a re-contribution strategy, you can reduce the tax paid by your adult children when they receive your super death benefit.
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.