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The federal government has introduced into Parliament new legislation that aims to reduce the financial impact on pensioners looking to downsize their homes.
In an effort to “minimise the burden” of downsizing for senior Australians, and free up housing stock for younger families, the government has introduced the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022, which gives pensioners an additional 12-month asset test exemption on their home sale proceedings.
The purpose of this is to give older Australians more time to “purchase, build, rebuild, repair or renovate” a new principal home before their pensions are affected.
The changes will reduce the deeming rate (an assumed rate of return on financial assets used when determining pension amounts) and drop from 2.25 per cent to 0.25 per cent per annum on principal home sale proceeds intended to purchase a new home.
Currently, when a pensioner or other eligible income support recipient intends to use the proceeds from selling their home to purchase or build another home, the proceeds are exempt from the social security assets test for up to 12 months.
Extensions for up to 12 months are available in the event of building delays, natural disasters or other extenuating circumstances.
The new legislation seeks to extend the assets test exemption to 24 months for principal home sales, in addition to the 12-month extension for extenuating circumstances.
The lower deeming rate of 0.25 per cent per annum will be applied to sale proceeds in the income test during the exemption period.
During the exemption period, pensioners will continue to be treated as home owners for means-testing purposes and fall within the eligibility criteria for Commonwealth Rent Assistance if they’re paying private rent for their alternate accommodation.
According to the government, more than 8,000 pensioners downsized last year — but with housing stock at a premium, the government hopes more pensioners would be incentivised to downsize following the changes.
Minister for Social Services Amanda Rishworth said the new change would “benefit thousands of pensioners and other recipients each year”.
“We don’t want people putting off downsizing to a more suitable home because they are concerned about the impact it could have on their payment rate and overall income,” she said.
“These changes will give pensioners more flexibility to find a suitable new home and it will hopefully free up larger housing stock for younger families who need it.”
This measure builds on the government’s prior commitments to freeze deeming rates at their current levels for two years, ending on 30 June 2024.
The move follows on from previous attempts to incentivise older Australians to downsize.
Prior to the 2022 election, the Coalition had moved to reduce the downsizer contribution eligibility age from 65 to 60. Under the scheme, eligible candidates would be able to contribute up to $300,000 from the proceeds of selling their property into their superannuation.
As per Treasury, the shift to downsizer contributions is intended to incentivise more older Australians to sell, “increasing the supply of larger homes for young families”.
The former Morrison government planned to bring this scheme into effect in the event of a re-election, with former prime minister Scott Morrison suggesting that the move would “remove financial barriers for people wanting to downsize”.
“By removing barriers for Australians downsizing to residences that better suit their needs and lifestyle, we are helping to free up larger homes for younger families,” Mr Morrison said at the time.
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