Upsizing homes before retirement - and forget passing down the holiday shack: Joe Hockey's 2015 budget pension implications

Forget about the folks - asset wealthy part pensioners - passing down the holiday home. 

Treasurer Joe Hockey's 2015 proposed pension change will ensure that elderly parents will have to liquidate the longtime family holiday home to afford to live under any new asset test regime targeted at existing pensioners facing the end of their entitlement.

However couples approaching retirement - and aware of the rules in advance - will possibly compromise on their superannuation voluntary contributions - or sell one of the two $400,000 investment properties - and instead push the funds towards buying an untaxed, un-counted bigger, better home that can be beneficially sold later in retirement.

Without the pension, the immediate likelihood after any January 2017 implementation is that it will be no longer feasible for the grandparents to hold onto the beach house - perhaps initially at least putting it in the 2017 Christmas holiday rental pool to raise some funds to pay the rates and put food on the table.

Social Services Minister Scott Morrison has flagged proposed changes to the pension assets test saying that 91,000 current part pensioners will no longer qualify for the pension and a further 235,000 will have their part pension reduced.

If the legislation is passed, the government will reduce the maximum value of assets to qualify for a part pension, which for couples is currently up to $1.15 million plus the family home.

For couples who own their own home, the asset threshold will be reduced to $823,000.

For single home-owners, the assets test cut-out will be $547,000, down from $775,500.

It is currently suggested people who lose their pension are set to keep the Commonwealth Seniors Health Card which provides access to concessional medicines, but lose their Pensioner Concession Card which secures discounts at the state level on rates, transport and utilities.

Over-55s hold 58% per cent of Australia’s wealth. But the majority is locked up in the family home.

News Ltd papers reported Scott Morrison had only kind words for those retirees who will lose access to the pension.

"My first word to the 91,000 is to thank them for providing for their own retirement," he told reporters in Sydney on Thursday.

"Those affected by these changes have assets, and by drawing down on those assets to those modest amounts they will be in a position to maintain their incomes."

The proposal presents anxiety for the over-50s population, currently 7 million and expected to double by 2050.

Through paid employment, volunteering and care-giving roles, older Australians are estimated to contribute $90 billion a year to the economy and community, the National Seniors Australia recently reported.

The family home, often the most valuable asset Australians own, both materially and emotionally, will remain outside the age pension means test under the proposal.

But the 2015 budget has yet to emerge as providing any solution for older Australians who require age-appropriate housing, which can be secured by rightsizing.

Infact quite the reverse is now the logical prospect in the lead up to the 2017 implementation given the principle place of residence remains sacrosanct in government policy.

"An innovative approach is required to enable seniors to access their equity wealth and downsize without the additional risks and disincentives of reverse mortgages, and without the fear of a negative impact on their Age Pension," National Seniors Australia seek.

The former Labor government’s Housing Help for Seniors pilot scheme, announced in the 2013-14 budget, was deemed a step in the right direction, however, the restrictions on the use of the excess sale funds and requirement to have lived in the home for 25 years, restricted its usefulness to older Australians. 

“A significant number of older Australians will be adversely impacted, so it is critical that clear information and access to advice are a priority so they can consider their position and the adjustments they may need to undertake,” the National Seniors Australia chief executive Michael O’Neill said.=

“These changes will cause anxiety, particularly for those older Australians who have been in receipt of a part pension.”