Super balances impacted by mortgage costs

The Government has been urged to consider exposing more of the family home to the Age Pension assets test, under a housing affordability research paper published by the Grattan Institute.

The Institute also suggested that the scale mortgage debt in Australia is now such that it is having impacts on the Australian superannuation system, with many older householders feeling the need to use some or all of their superannuation savings to pay down mortgage debt.

Among the range of remedies proffered by the Grattan Institute were proposed changes to the Age Pension assets test, which it claims would make pension arrangements fairer and contribute between $1 billion and $2 billion to the Budget.

“Under the current rules only the first $203,000 of home equity is counted in the Age Pension assets test, and the remainder is ignored,” the Grattan paper said. “Inverting this so that all of the value of a home is counted above some threshold – such as $500,000 – would be fairer, and contribute to the budget.”

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“It would also encourage a few more senior Australians to downsize to more appropriate housing, although the effect would be limited given that research shows downsizing is primarily motivated by lifestyle preferences and relationship changes,” it said.

However, it said these considerations dwarfed the financial trade-offs between having more cash to spend, but a lower Age Pension.

 “According to surveys, no more than 15 per cent of downsizers are motivated by financial gain. Only one per cent of seniors listed the impact on their pension as their main reason for not downsizing,” the research paper said. “Stamp duty costs (which are analogous to the threat of losing pension entitlements) were a barrier for a further five per cent of those thinking about downsizing.”

“Again, the dominant rationale for this reform would be budgetary rather than housing affordability,” it said. “Many Age Pension payments are made to households that have substantial property assets. Half of the government’s spending on age pensions goes to people with more than $500,000 in assets.”