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Time to reconsider the home as fourth pillar of retirement income, research finds
A new paper published by the Actuaries Institute suggests that encouraging Australians to access equity in their homes, coupled with changes to stamp duty and the age pension, could provide asset-rich, income-poor retirees with a significant income boost and help free up housing for young families.
The dialogue paper, More Than Just a Roof: Changing the Narrative on the Role of the Home, calls for a revaluation of how the home is traditionally viewed, proposing a shift from seeing it as merely a “nest egg” to recognising it as a key financial asset that retirees can use to generate income in retirement.
Author and actuary Andrew Boal, the institute’s retirement strategy group chair and partner in Deloitte’s superannuation and investment practice, highlighted that the property price boom has left many retirees, who own their homes, in an asset-rich but income-poor situation.
“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.”
Boal emphasised the importance of clear disclosure and consumer protection for any home equity release schemes to ensure that people understand what they are getting into.
Currently, more than 80 percent of Australians aged 65 to 74 live in their own homes, with retirees holding an estimated $1.3 trillion worth of housing equity. Despite this, many do not view their homes as financial assets that could be managed actively beyond paying for future aged care costs or serving as a bequest.
“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,” Boal noted.
To put this into practice, Boal recommended that a series of policy changes be phased in gradually, accompanied by robust regulatory frameworks, clear disclosure requirements, and strong consumer protections.
Among the suggested policy changes are removing or refunding stamp duty for over 55s who downsize, extending downsizer contributions to superannuation to include equity release schemes, relaxing the age pension means test for equity released from the family home, providing means test relief for home equity access such as through reverse mortgages, and gradually including part of the family home’s value in the age pension means test.
“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,” Boal said.
AUTHOR
Maja Garaca Djurdjevic
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