Nick Bruining: Don’t panic! Why idea of including family home in Centrelink age pension test won’t happen

As yet another group of financial boffins eyes off the family home for inclusion in Centrelink’s means-testing calculations for the age pension, seniors shouldn’t panic just yet. We’ve seen it all before. And just like then, other studies and the political realities of including the family residence in the calculations are likely to see the suggestion disappear into the ether. As reported by Your Money last week, an Actuaries Institute report says the family home should sit alongside other assets such as superannuation and savings to be used to fund retirement. The report cited the Henry Tax Review of 2010, which recommended $1.2 million of the value of the family home should be exempt. Anything above that would be included in means-testing. That recommendation lasted about 17 minutes. Then-treasurer Wayne Swan was quick to kill off several of chair Ken Henry’s recommendations. Top of the list was recommendation 88c — the inclusion of the family home in Centrelink means-testing. Among the many issues raised was the inequity of attaching a value to what’s considered a “reasonable” amount to remain exempt. While $1.2m back then might have bought you a nice 3x1 home in inner Sydney, for that kind of money in WA you could probably have bought most of Mukinbudin. Of greater significance is Treasury’s own views on Australia’s future, which are enshrined in the regularly released Intergenerational Reports. First issued in 2002, we’re now up to report number six, which was released in August last year. The reports take us out for the next 40 years to 2062. Significantly, it took into account the effects of COVID-19, and highlighted the long-term “pressure” areas of health, aged care, the National Disability Insurance Scheme, and debt servicing. Nowhere does Treasury suggest that the family home should be used to fund a senior’s lifestyle, though it does note some retirees will choose to use the stored value of their home anyway. The need to make significant changes to fund the age pension doesn’t get a mention, and that is probably because of the robust structure of Australia’s existing retirement income system. The Mercer CFA Institute Global Pension Index ranks Australia at No.5 — behind the Netherlands, Iceland, Israel and Denmark. The integrated approach of savings working hand-in-glove with the welfare system means we’re up there on the key measures of adequacy, sustainability and integrity. Most of those savings are in the form of compulsory superannuation. The last Intergenerational Report notes that, at present, expenditure on the age pension represents about 2.3 per cent of gross domestic product. It is expected to peak in the next five years at about 2.5 per cent and then drop to 2 per cent by 2062. That’s because superannuation plays an increasing role in funding the lifestyle of future retirees. The application of means-testing will have a greater impact as those super balances grow. Whereas now about 44 per cent of retirees receive a full pension, by 2062 that will drop to about 21 per cent — with another 40 per cent on a part-pension. Significantly, nowhere is the family home included as a source of funding. One final point worth noting. While funding a retiree’s lifestyle might exclude the family home, the same doesn’t apply to accommodation and aged care. The family home is already included in calculating those costs for singles, and with details of the new aged care legislation pushed back until after the next election, one suspects the new rules, whatever they are, won’t be universally popular. Watch this space. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association.