Spruikers will take advantage of retirees in new SMSF downsizing contribution scheme

Spruikers will take advantage of retirees in new SMSF downsizing contribution scheme
Spruikers will take advantage of retirees in new SMSF downsizing contribution scheme

The Federal Government scheme that aims to incentivise baby boomer home owners aged over 65 to downsize from their largely empty homes began this month.

The spruikers are ready in wait.

The elderly will be able to put the proceeds of the sale of their home into a superannuation fund tax free, up to $300,000 each or $600,000 per couple.

Research suggests the overwhelming majority of retirees own outright, having no mortgage, so their prospect of surplus funds is real. The estimated value of pensioner home equity at $625bn.

The new scheme, announced in the 2017 budget by Federal Treasurer Scott Morrison, means the elderly, including the baby boomers still way off retirement, will need to carefully consider the sale of their home to potentially utilise the opportunity.

Morrison's thinking was to encourage ageing homeowners to downsize to free up more affordable exisiting stock for young families.

The initiative was first floated three years ago by Morrison when he was social services minister with the government having advice from the Productivity Commission that estimated 15 per cent of older Australians wanted to move.

Of course Scott Morrison can't force older Australians to move house, given the emotional and financial investment in family homes, but the incentive offers some encouragement.

It must have been the home for the past decade, and it can only happen the once.

The superannuation break comes with no requirement it is into a smaller home. It could see them entering the rental market or relocating to an aged-care facility.

The downsizer contribution can only come from the sale proceeds, so, if a couple sold their home for $500,000, their combined downsizer contributions would be limited to $500,000.

Those most likely to benefit from the scheme will be self funded retirees who are excluded from receiving a government pension due to exceeding the income and/or assets tests.

There are still big impediments the government has not addressed on why the elderly stay in large homes long after their children have left.

For many the super downsizer contribution will reduce, even eliminate the age pension and associated pensioner cards.
Staying put which has come with the prospect of huge gains from property price growth and the maintenance of their pension often outweigh the advantages of moving.

There will likely be many opening a new superannuation account in which to make the downsizer contribution which must be done within 90 days of settlement.

I worry that the elderly will become vulnerable to what will be a new industry spruiking retiree smsfs.
After all it's not that the SMSF arena is full of clean skins currently.

Last month Australian Securities and Investments Commission (ASIC) advised around 90 percent of financial advice on setting up smsfs did not comply with relevant laws.

And ASIC identified a growing use of 'one-stop-shops' where there was an increased risk of getting poor advice that did not take account of personal circumstances or was not given in their best interests.

These are among the many factors to consider so professional financial advice should be sought.

This article first appeared in The Saturday Telegraph

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

Smsfs Superannuation


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