The homes of retirees should be considered an additional pillar of the retirement income system given many own their own home, but do not hold high levels of superannuation, according to a super and retirement actuary.
Actuaries Institute Retirement Strategy Group chair Andrew Boal said in the next decade 3 million Australians would retire without having benefitted from superannuation contributions throughout their working life, but who own their own home, and as a result of property price increases are asset rich and income poor.
“While most retirees own their own home, 60 per cent retire with less than $250,000 in their super. As a result, they’re often living more frugally than they need to, but this doesn’t need to be the case,” Boal said.
“It’s time for us to reconsider the role of the home as a fourth pillar of our retirement income system – alongside the age pension, superannuation and voluntary private savings – which could be treated as another financial asset to fund retirement lifestyles.”
He added more than 80 per cent of Australians aged 65 to 74 live in their own home and collectively retirees hold an estimated $1.3 trillion worth of housing equity.
“If retirees accessed 20 per cent of the $1.3 trillion they hold in home equity, it would unlock about $260 billion to help fund what could be 25 to 30 years or more in retirement,” he said.
In a paper released by the Actuaries Institute, titled “More Than Just a Roof: Changing the Narrative on the Role of the Home”, Boal said many people did not view their home as a financial asset and had adopted a nest-egg mindset which saw its future use limited to financing aged-care needs or as a bequest to the next generation.
“If we are to help retirees to improve their standard of living in retirement, we need to change the narrative so that it is more acceptable to access and spend part of the equity that has been built up in the home,” he said.
Greater access to affordable financial advice was the first step in this change, but he also called for policy changes that would remove or refund stamp duty for those aged over 55 who downsize their home and allowing downsizer contributions to superannuation to include amounts released through home equity release schemes.
He also called for relaxing the age pension means test for part of the value of equity released from a family home when it is sold and providing age pension means test relief on money accessed through home equity release schemes.
“These policy reforms could unlock billions of dollars to improve retirement living standards and at the same time help increase the supply of larger homes for young families, easing Australia’s housing supply issue,” he said.
