Federal Budget's trial program encourages downsizing to smaller homes without affecting aged pensions
The 2013 Federal Budget has a $112 million pilot to assist age pensioners to downsize their homes.
It will provide a means test exemption of up to $200,000 for ten years.
The new pilot sceheme follows the Panel for Positive Ageing having identified housing as one of the major challenges of an ageing population.
The age pension assets test doesn't measure the value of a family home, but after it is sold the cash proceeds can trigger a reduced pension eligibility.
"We will trial a new measure at $112.4 million in funding to assist senior Australians to downsize to a home more suitable to their needs without reducing their age pension," Mr Swan said.
From 1 July 2014, senior Australian homeowners who have owned their family home for at least 25 years and who decide to downsize will have the option to invest surplus funds (up to $200,000) in an account.
News Ltd papers indicated the Families Minister Jenny Macklin suggested there will be 30,000 seniors able to sell up and have their home proceeds protected from the age pension means test if they place the bulk of their sale proceeds into a special bank account.
Property Observer understands that those moving into residential aged care will not be eligible.
The funds invested in the account and earned interest, will be exempt from the age pension means test for up to 10 years.
The three year trial will commence on July 1, 2014 where senior Australian homeowners who downsize when buying another home will have an option to invest at least 80 per cent of surplus funds remaining (up to a cap of $200,000) in a special account. The funds invested in the account would be exempt from the age pension means test for up to 10 years. The scheme would only be available to Australians over age pension age who have owned their home for at least 25 years.
The age pension is the largest item of expenditure in the Federal Budget each year.
The means-tested pension commencing at age 65 for males and (currently) 64 for females but is set to be adjusted to age 67 over the next decade.
As at March 2012, the full age pension was $695.30 a fortnight for a single person and $1,048.20 a fortnight for a married couple. There was also a pension supplement for singles of $60.20 a fortnight ($90.80 for couples). The assets test is updated several times annually.
The means testing that is applied to the pension consists of an income test and an asset test. The payment received is the lower amount determined by the two tests. The family home is exempt from the assets test.
Currently a single homeowner with assessable income less than $152 per fortnight, and assets outside the family home of less than $192,500, is entitled to receive the full pension of $695 per fortnight plus a pension supplement of $60.20 per fortnight.
Every dollar of income above the income test threshold reduces the pension entitled by 50 cents per fortnight, and every $1000 of assets above the asset test threshold reduces the amount of pension by $1.50 per fortnight.
A recent Rice Warner actuaries reports noted a partial pension was payable for home owning couples with earnings up to close to $2,500 per fortnight and with over $1,000,000 in non-housing assets.
"For example, a couple who are homeowners with non-housing assessable assets of $750,000 and assessable income of $45,000, are eligible for a considerable part age pension payment of over $10,000 per annum, and those with even higher income and $1 million in non-housing assets are still eligible for a partial pension," it noted.
"Apart from the overly generous exemptions for home ownership, the means testing provisions generally ensure that those who are relatively well off do not receive a full age pension.
"However, means-testing has become a complex and inconsistent system,' it added.