PC calls for partial inclusion of family home in pension means test

Last week, Treasurer Scott Morrison warned young Australians not to expect they can rely on the age pension in the future. This was good advice, because the budgetary pressures facing the Commonwealth Government, emphasised again this week in grim forecasts of permanent deficits from Deloitte Access Economics, mean that the sustainability of current policy settings for the age pension is in doubt. Of course, one way the Commonwealth could improve the sustainability of the age pension is by limiting eligibility through including the family home in the means test. This would discourage retirees from tying up so much of their capital in housing, and would encourage them to draw down this capital to support their retirement.

There is partial support for this proposition from the Productivity Commission, which has today released an interesting research paper entitled Housing decisions of older Australians, in which it notes (p. 117):

In principle, including the full value of the principal residence in the Age Pension assets test would improve efficiency and equity.

However…removing the exemption entirely in the immediate future is intractable.

At a minimum, there is a strong case on equity grounds for setting limits on the value of the principal residence that is exempt from the Age Pension means test.

The thresholds beyond which the family home would be included in the means test could be $750,000 for couples and $500,000 for singles, as recommended by the National Commission of Audit, for example.

Also, in the interests of economic efficiency through encouraging labour mobility, the Productivity Commission recommended removing State Government stamp duty on housing transactions. This is another excellent policy recommendation. I hope this latest report from the Commission is widely read by policy advisers and their political masters.

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4 Responses to PC calls for partial inclusion of family home in pension means test

  1. Glen says:

    Good points Gene, I think we need to look at a total mix of assets, but we need to also index this amount which is where we get into trouble in this country. The amounts listed seem a bit low given values already in the system. If stamp duties were abolished then more retirees would be encouraged to downsize and free up capital to cover cost of living. At the moment the one simple rule in Australia is ” buy a bigger house” , if a person retires with $1.5million in super, just go and buy a $1m house and still get the pension, it’s just ridiculous.

  2. Toby says:

    Welfare for the poor only. Everything else can and should look after itself.

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