That " Asset Test " !

There is an enigma facing the average home owner when it comes time to implement some sort of retirement plan.  Under the rules that govern the aged pension the value of that home is excluded from the assets test - as long as they continue to live in it.

The price phenomenon that covers homes is all about where that home happens to be located. Sometimes a very modest little home on a quarter acre block of land could sell at a multi million price tag if it is located where the rich and famous have chosen to live.   As any Real Estate agent will tell you.   Price is all about " position  "  !

If the home is sold with the owner moving into aged care some of that asset money changes into a refundable bond.  That bond continues to be part of the pension asset test and that usually means the recipient receives  a part pension, reduced because their assets exceed the limit for a full pension.  At the same time, the fee charged for aged care accommodation is set by the government and attracts a daily premium based on that persons assets.

Not only does that pensioner receive a lower pension, the fee for aged care whittles away what is left.  As a consequence, we have many extreme aged pensioners struggling to live in their homes because they are frightened to sell - because of that pension asset test.  It seems inevitable that the government will eventually have to include the family home so that the asset test covers every thing that person owns - without exclusions.

When compulsory superannuation was introduced the aim was to create an asset that would tide the average wage earner over as a self funded retiree but the move to casual employment replacing the old concept of permanent employment is changing that geographic.   The privilege that applies to housing and the asset test is further distorting the true nature of " assets "  !

The time is fast approaching where this whole question of retirement income needs a reappraisal with longevity as part of that review.  In particular, the provision of concessions for pensioners needs a wider application because we now have many self funded retirees struggling with a reduced asset base but which excludes them from the pension.

In fact, home ownership is now becoming a form of superannuation in its own right.  Many expect to be paying off that asset for the majority of their working lives and when they face retirement that will be their major asset.  It is essential that the rules in place allow conversion from home ownership to managed aged care be undertaken within a clear working formulae. The present distortions make that impossible.

This housing price phenomenon seems to be a work in progress.   The degree to which it has progressed in recent years is amazing and nobody can accurately predict where it will be in the future.  It is certainly distorting the entire pensioner spectrum.