Date posted: 23/05/2018 5 min read

Leave the family home alone thanks very much

Australians and New Zealanders do not want their family home counted as an asset for government retirement benefits

In brief

  • Strong rejection of the family home to be counted in any test for government retirement benefits
  • Rejected by across all major demographics

The recent market research we conducted for our Future inc document, Population Ageing, Do we understand and accept the challenge, makes it very clear New Zealanders and Australians do not want the family home’s value used in determining what government retirement benefits they might receive.

First some background information

Only very few New Zealand residents are ineligible to receive the government retirement benefit called NZ Super.  That is, there is no income or assets test.

The only real penalty for retirees with additional significant income, say from employment or savings, is that NZ Super is subject to income tax.

The concept of equity in the New Zealand context is that everyone regardless of circumstances receives the same amount.

One benefit of the New Zealand system is that there is no penalty for earning employment income – that is, you can continue to work fulltime and receive NZ Super.  NZ has also outlawed age discrimination and both these policies have resulted in a larger number of New Zealanders working beyond age 65 when NZ Super first becomes available than occur across the Tasman.

Australia, on the other hand, has decided on a very different system.  It applies both an income and assets test to determine eligibility to the age pension.  Whichever of these two tests that produce the lower result is the amount paid to a retiree.

Equity in Australia means that only the most deserving should receive the age pension.  In reality the impact of the Australian system is such that it actively discourages individuals from saving above certain amounts and even encourages retirees to spend their wealth to maximise their government benefits.  This pension is also subject to income tax but with a generous tax offset system most retirees receive this benefit tax free.

In addition the Australian system effectively includes an amount for the family home in the assets test but at a low level.  For example, for a home owning couple, both retired, the assets test starts to have an impact at $380,500.  On the other hand a non-homeowner retiree couple can have $583,500 of assets before the assets test will begin to reduce their pension.

This $200,000 approximate differential also applies to single pension recipients.

What this effectively says is that the family home is worth $200,000.Why the $200,000 difference? This just happens to be the lowest median house price for cities and regions as measured by the Australian Bureau of Statistics.  The area with this lowest value is regional South Australia.

This notional value applies throughout Australia – even in locations where the median house price is significantly higher than $200,000.  For example, the median house price in Sydney is approximately $1.15 million but in the wealthy suburb of Mosman the median house price is about $3.5 million.

There is no doubt that relatively speaking the NZ Super is much easier and simpler to understand than the complex web of rules that applies in Australia.

Regular calls to include the family home in Australia’s age pension income or assets testing

Over the last several years there have been regular calls from a variety of think tanks suggesting that above a certain amount the market value of the family home should be included in the tests to determine age pension/NZ Super eligibility.

The reasons for this view vary but in some cases the argument runs that most retirees have significant untapped wealth in their family home and the government retirement benefits are an open ended benefit the cost of which is both countries is expected to rise strongly because of increases in longevity and population ageing.  Essentially the argument is that it is inequitable not to assess the market value of this valuable asset.

Some think tanks have produced research to show that retirees would have a better standard of living if they were able to extract value from their family home.

What did our research tell us?

We wanted to see how ready Australians and New Zealanders are for the possible respective government fiscal consequences of population ageing.

And given the rapid increase in the median house price in both countries – especially in major cities – we also wanted to see if some people might be open to including some of the family home’s market value in government benefit tests.

Overall we found little desire for change in current retirement policy settings.

In particular, as I have already noted the concept the including the market value of the home in working out how much age pension or NZ Super benefit would be payable was resoundingly rejected.  In fact only 28% of Australians and 25% of New Zealanders supported the concept.

All profiles - age, gender, income differential, employment type and marital status rejected the concept.

As might be expected, in both countries, the elderly were particularly against this policy – only 13% of New Zealanders and 24% of Australians aged over 65 agreed with these ideas.

What about younger ages?  In Australia, 37% of those aged between 18 and 24 and 39% of those aged between 25 and 34 supported this policy.  In New Zealand, the numbers were 33% and 41% respectively.  Hardly a resounding endorsement and little evidence of widespread envy about retirees living in their homes which their children will inherit all the while living off the taxes paid by the young.

It might sound logical to think tanks and others that the family home is a valuable asset that retirees should have to use for their retirement income needs but the population is not buying it.

Retirement Income Survey results

You can see a copy of our survey results from the following link.

View results

Search related topics