Retired, Equity a plenty, Living off the pension.

I thought I would start a thread on a discussion my boss and I were recently having as I found it very interesting.

I have opinions both ways but sit on the emotional side of the subject, he was on the other.

The discussion was about how retirees more later in life (say over 70) had unencumbered Homes worth millions but due to being the PPOR and having no savings/income were eligible for the aged pension.

He believes those in that position have the money to fund their own retirement, I said surely you can't expect someone in their late age sell up the family home and potentially need to move suburbs. He argued they may not need to if they were accomodated by more suitable housing as a number of these McMansions were unsuitable for elderly anyway (admittedly he was using Toorak in his examples).

I must admit he did then strike a cord when he said about my pop who has had to reverse mortgage his home to pay for nan when she was dieing with cancer with little equity and that someone with 2mil equity gets the same payment (not sure if this is true??). He said what about if those who needed it more were given additional funds currently being used for the aged pension for those with equity.

I still couldn't get my mind off kicking someone out of their home who they maybe lived in their entire life. I also said it would be cherry picking, neighbors with more run down houses or smaller blocks could stay because they don't have the value or perhaps still have a mortgage! Your now punishing people for paying off their PPOR debt.
He then talked about some form of government funded reverse mortgage so they could stay but it sounded too complicated.

It's a very touchy and emotional subject but I think makes for good discision.

Keen to hear people's views?

 

Western Sydney use to end at Summer Hill / Ashfield.
Balmain use to be a slum

These popular expensive areas use to be run down slums that no one use to live. People tend to forget about that.

My opinion is what these older people choose to do is up to them.
One day we will be their shoes, how will the opinions of these people change then? What's their excuse going to be "Its different.. you won't understand"

 

So take a suburb like Ashburton, large housing commission area in the 50s where poor folk lived. Now after 60 yrs their housing commission home is worth over $1m.

Is it really fair or equitable to expect a person in their 80s to navigate through reverse mortgages or consider moving away from what realistically is their life?

Humanity needs to take precedence.

 

PPOR should only be exempt up to a certain value. E.g lets say one million.
However there should be exemptions forpeople who have llived in the property continously for a really long time.

Cause at the moment. ... I could have 5 million in IPs... sell the lot... buy a 5m mansion on a small block at get the max age pension

 

Except those same people that are currently sucking up a pension have pretty much screwed us over in that respect. (what with their free education, cheap purchase price for houses, tax breaks for investments, blah, blah, blah)

No one needs to be kicked out of home, and changing it is certainly not something that should happen over night. Moving the goal posts at a critical point, after you have played by rules all your life is not cool, but a progressive transition is necessary.

The pension is welfare - a safety net for those in need. Anyone who complains about dole bludgers should equally be complaining about pension spongers.

Damn baby boomers ruining it all once again </semi-sarcasm>

 

humanity taking precedence also includes those out there doing it really tough who would benefit greatly by millionaires not collecting the pension.


i firmly believe that the family home should be included to some extent in pension calcs. perhaps it could be at double the city median price or something to that effect and anything over that figure gets included in means test. i havent though through the mechanics of how it would work in detail but i think it's ridiculous that someone could be sitting on millionns of dollars of property and collecting the pension.

its also why i believe it's important to have a mix of housing stock in most/all suburbs to some extent, to facilitate pensioners downsizing but still possibly staying in the same area they know and love while freeing up cash to contribute to their expenses in retirement.
the govt spends $44bn per year on the aged pension, in addition to other significant areas like disability support pension of $17bn.

within 30 years or so the % of the australian population on the old age pension will be around double what it is now if changes are not made, how would the country afford $88bn per year?

What would end up happening is that pension payments would be cut to all to a meagre level that im sure most of us would rather not see. by being more selective of who does and doesnt qualify for pension we can ensure that those who do qualify (which arguably will still be the lions share) do in fact get a pension that they can live on

 

There is already a reverse mortgage scheme available through Centrelink, so it wouldn't be complicated to alter the rules surrounding it.
Centrelink reverse mortgage scheme is just for the wealthy

 

No need to force old people to sell. But they could be forced to use a reverse mortgage but cutting their pension. Otherwise they will get their pension and pass on potentially large tax free estates to their children -who may already be wealthy

 

There's potentially ways to recover some of the costs involved and I think they need to be implemented in more situations where there is sizable house equity.

I think its pretty crazy that currently you can literally be multiple times richer than the average Australian, and claim the full aged pension and land tax exemption on top of that.

 

I agree with the whole kicking someone out of their home when they are elderly hence why I sit on the emotional side but everything I have grown up with should be on the other side.

My pop I have used the example off. Had to reverse mortgage his home to pay for medical and then funeral costs and his home is worth 350k. The bank now owns 150k off that.
He gets and got the same as someone with a 10mil PPOR.

My father has an unencumbered 1mil property but doesn't get a cent from the pension as he invested for his retirement.

The argument from my boss was that self funded retirees can have a 10mil PPOR if they want.

 

I think the ppor already counts as an asset if it is over a certain amount.

 

@Ghoti that is another point I raised. I said fair enough they have loads of equity but doesn't mean these suburbs were by any means desireable when they purchsed them.

@Terry_w if there were a way that they could keep their homes without the banks getting their hands on it at inflated interest then I would be all ears. I don't think making the banks more wealthy is the solution though.

 

Perhaps there could be a tax after death. Their estates could pay some of that pension money back.

 

I worked in Aged care, managing a home maintenance team for Bayside Council (very affluent area). When I commenced work, I was of the belief that some of the older folk, living alone in a very large house, should sell up and move into smaller more modern homes better suited for their aged care needs. A lot of these clients were over the age of 80, husbands had passed away, had no super or savings, (husband was main bread winner) and were living in multi-million dollar homes, that were falling down around their ears. I could logically argue why they should sell up, get better safer homes, get off the pension, give some money to the kids, help pay for any medical and nursing needs etc.
I had this discussion with one of my managers, very learned and compassionate lady. She enlightened me to the studies that showed that the elderly live longer in the family home, with support, than if you move them into residential care, and that is longer that if you move then into their own new premises. She also encouraged me to ask clients what they loved about their homes.
Over the next few years I was reminded of difference between a house and a home. I was lucky enough to visit two people over 100 years old in their own homes, one who was born in the front room of the house, that he went on to inherit from his parents. This person was not rich and had a good life, not fantastic as some might have expected. His fondest memories were mostly to do with things around the house and people who lived or stayed with him.
There are many people in affluent areas who are asset rich and income poor, through no fault of there own, often they are widows who didn't work, as it was not the done thing at the time. Connection to community, friends, trusted medical services, council services and other assistance is hugely important to most elderly people.
I am firmly a believer in let them stay and help them out.
How would you go having to move house and you had to find a new internet provider, who worked differently to your last and you need to use a different browser and you had to find a new coffee shop and you were not allowed to order your regular coffee?
Unfortunately one of the saddest thing I witnessed was older people who were badly let down by their children. A man who didn't have time to buy his mum an over the toilet seat, as he was flying to the UK for the Olympics, in two days time. A care worker took the 20mins to go and buy it. Older people saying that cannot reverse mortgage for repairs to the house or operations for themselves as the Kids would not be happy they was using the equity in the house.
I also learnt not to judge, as there were many lovely old people who from all reports were a**holes during their lives, especially to family members.

Rant over. I no longer work in this field as the politics of local council did my head in

Cheers
PP

 

i dont believe so, it says that the PPOR and up to 2 hectares surrounding it, providing on same title or something to that effect, are exempt.

also, couples who are homeowners can have up to $1.2m in assets OUTSIDE the PPOR to qualifyt for part pension, again this is too generous imo

 

i genuinely do see what youre talking about, my grandmother, who im extremely close to , will never move out of her place (overseas) because of the memories.

that doesnt mean that the taxpayer should bear the full cost, it simply isnt sustainable. be it throuh reverse mortgage or an estate tax (i dont like the idea of estate taxes generally), whatever. this way the pensioner can in favt remain in their home if thats their wish but the govt will be "paid back" upon passing. the kids/grandkids of the pensioner do not deserve to get their full inheritance if it meant their asset rich grandparent stayed in a multi million doillar home and collected the pension while doing so .

if nanna means so much they could try chipping in like people do around the world.

 

I'm on the fence on this topic and something like what you mention is a good compromise. I would add that no pensioner would be forced to move but perhaps forced to take a reverse mortgage to receive the pension and the mortgage paid back when they die.

But what about the practicalities? A thorough cost-benefit analysis would need to be done first. I suspect the extra cost of centrelink staff and having to value every pensioners house every x years might outweigh the cost savings of reducing/denying a pension to those that are above double the median price.

 

i sincerely doubt that. a valuation is pretty cheap, it could be done similar to how NRAS is done, i think valuation every 3 or 4 years and inflation used in the years in between or something to that effevt. when you consider pension payments, it is in no way going to be more expensive to administer than the savings it would achieve.

agree that a cost benefit analysis needs to be done so im making assumptions here. i just cant see how it isnt feasible though

 

Politically it will be very hard for a government to tax PPOR (directly or indirectly) in anyway and expect to be elected.

Another alternative is to have estate tax / death tax on your PPOR which is more easy to sell as it will have no impact on you while alive only once both husband/wife/partners are dead will the government impose tax on your PPOR to recover monies for the services you benefited while alive.

So even if you live in $5m mansion you will be hit by say 20% estate tax which is $1m for the government.

Cheers,
Oracle.

 

I am a boomer. Something is wrong in Australia when after one of the strongest resource boom the budget can still see deficits. The budgetary bias is still predominantly hoping for a balance sometime in the future. When current generations prefer to take on debt and leave the pain of settlement for future generations, it shows an intergenerational imbalance.

Hanging onto equity in PPOR as exempt assets while receiving the Aged Pension and later pass to descendants as exempt from CGT is unfair to future generations. There should be mutual obligation to access the Aged Pension. A person should try to provide for himself with all means including the equity from the PPOR before accessing welfare.