If you have money in your home, you could face the prospect of lose your pension, according to the head of the Productivity Commission.
Chairman Peter Harris says Australia is ill-prepared for an influx of relatively healthy retirees who will live longer.
“The original age pension recipients generally had spent near enough to 75 per cent of their life after the age of 15 in full-time work,” he will say, reports Fairfax.
“For the baby boomers, that figure has fallen to about 60 per cent, and for the generation today in high school, that figure will fall to around 50 per cent, mostly based on significant health gains.
“Over the next generation the cost of the age pension would climb by 1 per cent of gross domestic product, the cost of aged care by 1.8 per cent, and the cost of healthcare by 2.9 per cent”.
Many older Australians don’t want to chew into their savings or use the equity of their homes just to get by.
“At the personal level, there’s no reason to be critical of an inherent tendency to save in old age,” Mr Harris will say.
“But poorly-constructed policies should not exacerbate such tendencies. Nor should they pander to populist commentary”.
Australians aged 65-74 had home equity per household of $480,000, Productivity Commission figures show. While the median super balance at age 60 was $95,000, housing was “the very last asset to be drawn upon, if at all”.
Interestingly, a Commission survey found 88 per cent of retirees planned to leave their house to one or more family members.
Mr Harris is today calling for a comprehensive review of the pension system, arguing it is probably the only way to “generate the necessary public understanding that change may be needed”.
One recommendation will be to force retirees to include their house in the assets test for the pension, in turn having no choice but to use the equity. If houses were completely included, a further 11 per cent of retirees would lose the pension and almost half would have their pensions cut.
For example, if the value of assets above the median house price of $440,000 were included, the proportion of Australians qualifying for the pension would slip 2.5 per cent and 8 per cent of pensioners would lose part of their pension.