Pension proposal to hit downsizers hardest: Lane

The Federal Government’s proposed changes to the Age Pension assets test may create a disincentive for older Australians to downsize, writes Rachel Lane.

The Federal Government’s proposed changes to the Age Pension assets test may create a disincentive for older Australians to downsize, writes Rachel Lane.

It is easy to see why people have been calling for the inclusion of the family home in the pension assets test – why should someone who lives in a $2 million home be able to receive the full pension?

Rachel Lane, principal Aged Care Gurus
Rachel Lane, principal Aged Care Gurus

But the Federal Government appears to have rejected such a measure and is now talking about changes to the asset test taper in Tuesday’s Budget. Such changes are likely to affect part-pensioners and downsizers.

This is how the asset test works: currently a person or couple lose $1.50 per fortnight of the Age Pension for every $1,000 of assets they have over the asset test limit. The government’s proposal is to increase the threshold and increase the taper rate so that for every $1,000 of assets over the new threshold $3 of the age pension will be lost. This will effectively reduce the number of people receiving some pension, and for others will mean that the pension is lost entirely.

People who downsize their home to move into a retirement community or aged care facility often pay less than the value of their home. Under this change downsizers may be better off paying an amount that is equal to or greater than the value of their current home.

In a retirement community this may be a lot simpler, in fact, in some retirement communities you can negotiate with the operator to pay a higher amount going in to pay a lower amount as an exit fee. For people moving into aged care it is not so simple. The aged care reforms that were introduced on 1 July last year mean that residents cannot pay more than the facility’s market price.

Adding to the complexity, downsizers who move to an over 55’s community rather than a retirement village may find that it is more affordable due to the ability to access rent assistance and the fact that exit fees often don’t apply.

Let’s look at an example.

Shirley is a part-pensioner who is considering moving from her family home to a retirement village. Her home is worth $650,000 and the unit in the retirement village is $400,000. Shirley has $100,000 in the bank, $150,000 in term deposits and $10,000 worth of personal effects including her car. Shirley currently receives $773 per fortnight of the Age Pension. The proposed change to the asset test threshold would increase Shirley’s current entitlement to $830 per fortnight.

If Shirley moves to a retirement village, paying $400,000, the extra $250,000 in assets will reduce her pension to only $80 per fortnight. Put simply, she loses $750 per fortnight of the Age Pension. The effect is less – a reduction of $180 per fortnight – if she pays $400,000 to an aged care facility.

If Shirley purchased a unit in an over 55’s community for the same amount, her pension would still be $80 per fortnight but she could receive rent assistance of up to $128 per fortnight to help her meet the ongoing fees. This is because in an over 55’s community you own the home but rent the land.

Conversely, if Shirley chose a more expensive retirement unit or aged care facility, let’s say she pays $700,000, her pension would increase to $860 per fortnight. If she purchased a unit in an over 55’s community her pension would be $860 per fortnight and she could receive up to $128 per fortnight of rent assistance.

Downsizers have more choices around the price they pay and when they move. People needing aged care are limited by the market price arrangements and the ability to access the care they need. Placing such a disincentive on downsizers and people who need care does not serve senior Australians or the young people who miss out on the opportunity to buy a home.

Rachel Lane is principal of Aged Care Gurus and co-author of Aged Care, Who Cares?

Tags: age-pension, aged-care, budget, downsizers, rachel-lane,

1 thought on “Pension proposal to hit downsizers hardest: Lane

  1. This terrifies me My Mum is in care my Dad has passed away. We had to sell the family home. We have invested in a lifetime annuity for Mum to meet the expenses of her care facility and Dad’s Super pension was been cut by 25% when transferred to Mum. Her DVA pension was cut by 4/5ths. And she pays close to $2000 a year for private health insurance
    You have to have the assistance of a financial advisor to walk through this maze. And they dont come cheap and who do you trust. Mum is not a millionaire. Dad worked hard to provide for her – I cant even begin to imagine what will happen in 20 years time when I am in my 80’s

Leave a Reply

Your email address will not be published. Required fields are marked *