Downsizers will be hoping for major age pension, granny flat and rental assistance reforms as part of a shake-up of retirement income policy expected to be announced in the 2020-21 Australian Budget.
The budget - set for Tuesday, October 6 - is expected to include the government’s long-awaited response to its retirement incomes review.
The review was established in September last year and has looked at the so-called three pillars of the existing retirement income system - being the age pension, compulsory superannuation and voluntary savings (including the family home).
This review has the potential to transform the way that downsizing takes place in Australia.
Below are some of the policy outcomes that are on every downsizers’ wish list.
Allowing downsizers to sell their family home without pension impacts
At present, downsizers have the potential to be penalised if they sell the family home, buy a less expensive home and release funds for their retirement.
This is because these surplus funds will count towards the pension assets and incomes test, and therefore may result in the downsizer losing, or getting less access to, the age pension.
According to a 2017 survey undertaken by Downsizing.com.au and LJ Hooker, the current operation of the pension means test is the 4th largest barrier to downsizing, behind stamp duty, high property prices and a lack of suitable properties.
Australia is one of the few countries in the world where all pension payments are means-tested.
Seniors’ advocacy group National Seniors has advocated that Australia should switch to the New Zealand model, where pension payments are universal and not means-tested. That system would allow a downsizer to release equity from the family home, and retain the pension.
This outcome would allow downsizers to more easily move into safer and more age-appropriate accommodation in retirement, including benefitting from greater social interaction and easier access to home care and healthy living facilities.
It would also support housing affordability, by resulting in more larger family-style homes coming on to the market, and filling currently unoccupied bedrooms in the homes of empty nester couples.
Research shows that an incredible 59 per cent of households aged 55 and above have two or more bedrooms spare. This situation is exacerbating inter-generational housing inequality.
In short, this reform could be a game-changer for Australia’s downsizing industry, while at the same time help young and growing families find a home.
Granny flat tax reforms
We’ve been waiting for some time for the government to release a review completed by the Board of Taxation in November 2019 into the tax treatment of granny flat arrangements.
These arrangements are typically intra-family agreements which deliver a legally-enforceable right for a parent to live in a granny flat.
At present, there is a significant disincentive to create these arrangements, because they can trigger a capital gains tax burden on the family home.
In turn, this means that older Australians may be encouraged by their children to sell their home and occupy a granny flat built on their children’s land, without having any formal right to occupy the granny flat.
This, then, raises the potential for elder abuse - including the parent being evicted at a later date and effectively made homeless and the children gaining ongoing control of the granny flat which the parent originally funded.
It would seem quite likely that the government response to this review will form part of the retirement incomes policy review in the upcoming budget.
It’s hoped that the government will exempt reasonable granny flat arrangements from capital gains tax, to provide an improved housing pathway for older Australians.
Last home owners’ grant
The release of the retirement incomes review is an opportunity for the Australian Government to remedy the HomeBuilder grant shambles.
HomeBuilder is a $25,000 government grant announced in June 2020 which can be used to build a new home, or renovate an existing home, and is designed to support the Australian construction industry to get through the COVID-19 crisis.
Shortly after announcing the scheme, the government updated its fact sheet in a way which gave hope to the retirement living industry that downsizers moving into newly-built leasehold retirement villages would be eligible for the grants.
However, in late July, the fact sheet was changed again, this time in a way which would appear to make it very difficult for retirement village purchasers to claim the cash.
Commenting on this, the Retirement Living Council said: “While the re-emergence of COVID-19 risks has seen the Victorian and NSW governments engage much more closely with industry, the Federal government has once again slammed the door on support for retirement living.”
“Even though every retirement living resident saves government an average of $12,600 a year through reduced health and aged care costs, the Federal government has decided that downsizing to a new build home in a retirement community is not worthy of support through the HomeBuilder initiative.
“This is obviously a very short-sighted and disappointing outcome.”
The release of the retirement incomes review, and the Australian Budget, presents an opportunity for the government to fix this debacle, by delivering a ‘last home owners’ grant’.
While there are obvious benefits to Australian downsizers from this grant, it would also have the benefit of increasing developer interest in the over 50s housing market and hopefully create additional and suitable housing stock.
Previous reader surveys undertaken by Downsizing.com.au have highlighted the lack of adequate housing stock as a major barrier to downsizing.
Making it easier for renting seniors
In coming decades, it is expected that more Australians will be entering retirement as renters. This is a reflection of the sharp increases in capital city property prices from the mid-2000s.
The percentage of Australians aged over 65 who are renters is set to increase from nine per cent in 2016 to 11 per cent in 2031. This means that, in 2031, there will be 543,433 renters in this age bracket, an increase of 264,405 from 2016.
Despite this, the current policy framework - both at an Australian and State level - works against renting seniors.
As noted by National Seniors, Commonwealth Rental Assistance payments (which can be claimed by age pensioners who are in private or community housing rental) is a ‘one size fits all’ solution, with the same amount on offer despite wildly varying rental prices across the nation.
This has the effect of forcing older Australians out of their long-term homes in gentrifying inner and middle capital city suburbs.
Downsizers would welcome a change to the rental assistance payment scheme in the Australian Budget, to better link payments to local area rental prices.
However, even if these seniors are able to afford the rent, they face being evicted if the landlord decides to re-occupy the property.
The emerging ‘build to rent’ sector is a potential solution to this problem, through the creation of housing in which rental price increases are capped and evictions are highly unlikely, because the properties are permanently available for renters.
Already, Mirvac has predicted that one in five future occupants of its new Liv Indigo tower at Sydney Olympic Park will be downsizers.
The property industry is looking to the Australian Government to reform tax around managed investment trusts, to build more investment into this sector.
Footnotes:
- Retirement incomes review announcement
- National Seniors’ submission seeking a universal pension
- National Seniors’ retirement incomes review
- Granny flats: how you can avoid tax and pension traps
- Government announces granny flat tax review
- HomeBuilder shambles as many retirement villages ‘excluded’ from $25,000 grants
- Australia’s largest rental-only towers trigger downsizer rush
- Australia we have an empty bedroom problem
