Calls for family home to be included in pension assets test

It was originally flagged as a “safety net” when it was first introduced, but now it’s claimed the Age Pension has become a “supplementary income” – prompting calls for a major crackdown.

Rice Warner CEO Michael Rice has argued the family home should be included in future pension asset means tests, claiming the relativity between renters and those who own their own home is unfair.

In a powerful paper delivered at the Actuaries Institute’s Financial Services Forum this week, Rice said recent tightening of means testing, as well as people retiring later in life and growth in superannuation balances, means the cost of running the Age Pension will reduce in the coming years. 

With that in mind, he has called for future policy initiatives to include subjecting the family home to means testing as a fixed value of average earnings, and for retirees to be incentivised to stay in the workforce on a part-time basis beyond the retirement age. 

The family home isn’t currently included in the means test, meaning people who invest their savings in their principle home can still receive the full Age Pension depending on the value of their other assets. However, those who are renting, but may have more money invested in other assets, such as the stock market or investment properties, might not be able to receive the Age Pension.

Speaking to Sky News, Rice explained: “The relativity between people who rent and people who own their own home is unfair. If you had a home worth $2 million and $300,000 of assets you’d get a full pension – say $35,000 a year from the tax parer. If on the other hand you had that wealth all in your own assets with no house, you’d get no pension at all – even though your underlying wealth is exactly the same.”

Asked how the ratio between property valuations and earnings has changed over the years, he replied: “30 years ago, the average capital city property was around two and a half times annual earnings, and if you look at the gap between the assets test and the means testing of the Age Pension, renters get a $200,000 allowance. That’s pretty much where that gap changed.

“But property today is 10 or 12 times that annual earnings, so you’d have to say there’s a big investment component built into the family home.”

Read more: Government announces latest 6-monthly increase to the Age Pension

As the presenter pointed out it could cause some controversy, he concluded: “I should say, it’s not that we’re saying everyone who has a house will be trapped, it’s more about saying ‘houses above a threshold should be built in’.”

Rice suggest the money saved from pension program could “be spent back on the elderly in other ways” such as aged care. 

In his speech on Monday, Rice also called for future policy initiatives to consider increasing rental assistance for pensioners and better incentivising them to work part-time rather than fully retiring – eventually reducing the amount the government would need to support them, as they’d have more security from their own income.

Elsewhere, Rice responded to concerns the Age Pension may one day cease existing at all – insisting his firm’s projections modelling showed that while there may be less people eligible for the pension in future, a significant proportion would still receive the payment.

The paper said: “The proportion of the eligible population receiving the Age Pension will fall from around 69 per cent in 2017 to around 56.6 per cent in 2038.”

It added: “By 2060, the proportion of the eligible population receiving the Age Pension will fall to 45.1 per cent.  At these levels, it will remain a supplementary benefit as well as a safety net, in line with the Objective of Superannuation.”

The paper stated that the government should focus more on “targeting higher superannuation balances”, so retirees don’t need to rely on the pension as much.

Do you think the family home (over a certain threshold) should be included in the pension test? Is it fair as it is, or would this make it fairer?

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