Pensioners need more support

| April 8, 2013

As moving into age-appropriate accommodation becomes a reality for a growing number of Australians, Australian Unity Retirement Living CEO, Derek McMillan, explains why pensioners need further financial support.

An older couple rattle around the two-storey house in which they raised their now 40-something-year-old kids. It’s big and hungry for maintenance; the garden seems to have a mind of its own; and the stairs up to the main bedroom are becoming harder to manage. Each worries the other will take a fall.

The neighbourhood has changed around them too. Most of the neighbours they knew well have moved on. With driving becoming increasingly stressful, they feel isolated and their social interaction is limited.

They start to look at their options but soon understand that selling their home to move into a retirement village or to downsize into an apartment is not a straightforward matter.

The couple estimate their house is worth $700,000. To move into “age-appropriate’’ accommodation in a retirement village would cost about $400,000 up front. But the remaining $300,000 in released equity would significantly reduce their pension entitlement.

Like many older Australians, this asset rich, cash poor couple find the choice between selling and living off their home equity or staying in their home extremely difficult.

At first look it may be difficult to find sympathy for a couple with a six-figure bank account if they changed living arrangements. The income available from investing the $300,000 equity released from their home is nowhere near enough to live on, yet it has a significant effect on the value of their pension. So they opt to remain in their house, struggling with their garden and the stairs, cut off from social interaction and increasingly anxious about the future.

As an organisation, Australian Unity is proposing pensioners should receive incentives – by way of having their pension preserved – to fund their ongoing accommodation and care after having sold their family home.

This is just one of the areas where we argue the current federal Government missed an opportunity to improve the nation’s aged care system. Despite receiving some excellent recommendations from the Productivity Commission’s “Caring for Older Australians” report, its “Living Longer, Living Better’’ reform package fails to make the structural reforms necessary to ensure the sector is less reliant on government funding.

The reforms, which propose greater user contributions, are in our view, illusory. The vast majority of aged care recipients are pensioners and therefore unable to fund significant co-care contributions from their savings or income, while the billions of dollars of home equity they collectively hold remain under-utilised.

Specifically, we argue the need to end the current anomaly, where the equity released from the sale of the family home is taken into account in determining the value of the pension. Doing so comes at no additional cost to government, as the default behaviour of the pensioner (staying in their own home) requires the pension to be paid in full.

And it would create a broader benefit, freeing up more private housing for families in established suburbs. In turn, this would ease some of the pressure on governments providing infrastructure to service those new, outer suburban areas where so many families looking to break into the property market are pushed.

There is the valid concern an older person could be “double dipping’’ – collecting the full pension while having several hundred thousand dollars in the bank after the sale of their home – but this risk could be mitigated by introducing aged-based (ie. over 75 years) or asset-based (ie. $350,000) limits.

Despite the compulsory superannuation regime, the vast majority of older Australians are either full or part-pensioners, and this is not likely to change any time soon. If pensioners are expected to make a greater contribution to the cost of their care under a meaningful co-payment regime, a critical component of that regime should allow for a greater release of housing equity without financial penalty.