Retirees with $1M homes pocketing $6.4 billion in pension payments

Nov 05, 2019
The data was compiled by Associate Professor Ben Phillips and first published in The Australian. Source: Getty.

The question of fairness when it comes to the family home being exempt from the Age Pension asset test is an issue that continually divides Australia’s older demographic, with many believing that pricey family homes should be included in the eligibility assessment, altering who receives fortnightly pension payments, while others would prefer things to remain the way they are.

Sometimes dubbed the “last great loophole”, the Australian government does not count the home you live in, and up to two surrounding hectares of land, when assessing your eligibility for the pension. It doesn’t matter whether you own a one-bedroom unit or a waterfront mansion, they’re exempt all the same. However the issue often sparks debate about the fairness of the current pension system.

However new research has now revealed the cost of excluding the primary residence from the asset test, with analysis from the Australian National University finding that almost one fifth of pensioners live in homes worth upwards of $1 million and collectively claim more than $6.4 billion in pension payments annually.

The data compiled by Associate Professor Ben Phillips, and first published in The Australianalso showed that more than 225,000 older Australians are funding their retirement with taxpayer’s cash, while living in homes with values in excess of $1 million. Perhaps not surprisingly, these people predominantly live in the wealthier suburbs of Sydney and Melbourne.

“Around $6.4 billion out of around $50 billion in age pension payments go to pensioners with a family home valued at over $1 million,” the paper reads. “This suggests there are large potential savings in recouping pension payments to those with family homes of considerable value.”

The data also revealed that more than 30,000 pensioners reside in properties worth more than $2 million, with those people raking in more than $680 million in Age Pension payments.

The report comes just days after it was reported that an increasing number of Aussie seniors were bucking the trend of downsizing their homes in retirement in favour of actually upsizing and purchasing more valuable properties, in a bid to hold on to their pension entitlements.

The trend of ‘upsizing’ sees older Aussies choosing to invest their financial assets more heavily into property, buying bigger, pricier homes as a way of making the funds exempt from the age pension asset test. The reason for doing so is that an individual’s primary residence is taken out of the equation when their eligibility for the Age Pension is assessed.

Discussing the trend in part four of The Australian’s ‘On the Fence’ podcast, financial planner Heidi Schwegler said that it stemmed for people feeling entitled to fortnightly pension payments. She said: “[People] feel as though it is their right, I will crawl over hot coals to get $1 of pension and if that means I have to sell my home and buy a more expensive home, then I will.”

Earlier this year Treasurer Josh Frydenberg announced that there would be a sweeping review into the country’s current retirement income system, focusing on the Age Pension, superannuation and taxation.

The review came about on the back of a series of recommendations made by the Productivity Commission which included looking at whether the cost of tax breaks on super was cancelling out any benefit to the public purse. Other recommendations included the cancellation of licences of super funds that repeatedly underperform over a period eight years, if they fail to turn things around within a 12-month period. It was also suggested that Australian workers be provided with a list of the top 10 superannuation funds to choose from when they start a new job.

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