Last May’s Budget contained a measure that would allow downsizing retirees to place up to $300,000 each in super irrespective of their ages and current super balance.
In announcing the change, Treasurer Scott Morrison said, “the measure reduces a barrier to downsizing for older people … It may also enable more effective use of housing stock – freeing up larger homes for younger, growing families.”
There is no doubt that there comes a time when moving from the long-held family home comes to front of mind. When I was in private practice I continually heard, “There are now just the two of us rattling around in a house that has become far too big for us since the kids departed. And the increasing cost of maintenance is really eating into our savings.”
So, the motivation is there, but if like most Australians they receive a partial age pension, they will be reluctant to move because the tighter assets test means they could lose up to $7800 a year for each $100,000 converted to financial investments.
Think about a couple, both aged 66, with a house worth $900,000, $325,000 in superannuation, $50,000 in personal effects such as furniture and motor vehicles, and who receive the full pension. Their house is getting too big, so they are contemplating downsizing to a property worth around $550,000. This would free up around $300,000.
The new proposals are of no benefit to them. Once a person reaches pensionable age all financial assets are assessable, whether they are held inside or outside the superannuation environment. They would be converting part of a non-assessable asset, the family home, into an assessable asset, cash. Their total assessable assets would rise to $625,000 and their pension would fall from $1339 a fortnight to $589 a fortnight.
They would have to decide if the increase in income they would receive from having an extra $300,000 invested would compensate for the loss of nearly $20,000 a year in pension. A further factor to consider is what further capital gain their home might make if they delayed moving for a few more years while the capital in their super ran down. They may well take the view that the combination of that capital gain and the maintenance of the full pension would outweigh the advantages of moving.
So for most retirees there is no value in the proposed scheme.