Government is proposing a raft of initiatives aimed at supporting pensioners into smaller homes to help free up more housing for younger home buyers. The “right-sizing” Bill, which is yet to be passed through Parliament, would make downsizing for older Australians a whole lot easier, giving pensioners more flexibility to find a suitable home, and potentially freeing up more housing for younger families. Find out more about how the Bill could benefit older Australians if it gets passed.

How downsizing currently affects the Age Pension

Currently, the Age Pension depends on the assets test (the total value of someone’s assets) and the income test (all income they receive). The home is not included in the assets test, and when it is sold is exempt for up to 12-months providing the seller intends to use the proceeds of the sale to buy, build or renovate another home.

However, the proceeds of the sale are deemed income, and are tested at the upper deeming rate of 2.25 per cent per annum. The deeming rate is an assumed rate of return on financial assets which is used to calculate pension amounts. That means a pensioner selling and downsizing their home could find their pension is significantly reduced because of the income they receive from the sale of their property.

How the Bill could change things

The proposed Bill would extend by a further 12-months the asset test exemption on the sale of a pensioner’s home, to provide them with a 24-month period in which to purchase, build, rebuild, repair or renovate a principal home before their Age Pension becomes impacted.

Furthermore, during this 24-month period, a lower income deeming rate would also be applied to the proceeds of the sale intended to be used to buy a new home. The deeming rate would decrease from the current 2.25 per cent per annum to 0.25 per cent per annum.

Additionally, during the exemption period, pensioners would still be treated as a homeowner for means testing purposes and would be eligible for Commonwealth Rent Assistance if paying rent for alternative accommodation.

Why downsizing is important

By incentivising older Australians to move into more appropriately-sized homes, the Federal Government hopes to free up property for younger families who are looking for bigger homes. And with over 8,000 pensioners downsizing in 2021 alone, the “right-sizing” Bill could potentially benefit thousands more each year.

Minister Rishworth says the Government hopes to see this number increase if the legislation is passed.

"We don’t want people putting off downsizing to a more suitable home because they are concerned about the impact it could have on their payment rate and overall income.

"These changes will give pensioners more flexibility to find a suitable new home and it will hopefully free up larger housing stock for younger families who need it."

Ben Myers, Executive Director of Retirement Living at the Property Council of Australia, says the incentives are a win-win for both older homeowners and younger families. While more housing stock could become available for younger home buyers, for older Australians the benefits of less maintenance and improved accessibility with a smaller home, could mean living in their own home, independently for longer.

Plan a secure retirement today

Whether you’re reaching retirement age or just starting out in your career, it’s worth getting independent financial advice with a view to planning for retirement. Talk to the team of mortgage brokers at Mortgage Express about financial planning aimed at ensuring a secure retirement.

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