The Federal Government is seeking to address the issue of housing supply and affordability by giving pensioners more incentives to downsize.
Tabled in parliament today, proposed new legislation would provide pensioners with an additional 12-month asset test exemption on the sale proceeds of their home, giving them more time to purchase, build, rebuild, repair or renovate a new residence before their pension was impacted.
The bill also proposes changes to the deeming rate when a pensioner sells their home with the intention of purchasing another.
At present the deeming rate is 2.25 per cent per annum, is considered income, and is used to calculate pension amounts.
Under the proposed law, from January 2023 this rate would reduce to 0.25 per cent per annum, effectively allowing pensioners to continue collecting a higher pension rate, despite the sale of a financial asset.
Minister for Social Services Amanda Rishworth said the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 would benefit thousands of pensioners and other recipients each year.
More than 8000 pensioners downsized last year and Labor hopes this number will increase if the changes are legislated.
“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,” Ms Rishworth 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.”
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, those proceeds are exempt from the social security assets test for up to 12 months.
An additional 12-month extension is available in extenuating circumstances, such as building delays due to a natural disaster.
The majority of property sale proceeds are usually deemed to earn income at the upper deeming rate, currently 2.25 per cent per annum. This can have a significant impact on a person’s pension or other payment rate.
The legislation introduced today would extend the assets test exemption to 24 months for principal home sale proceeds. The additional 12-month extension would still be available in extenuating circumstances.
During the exemption period, only the lower deeming rate would apply to these sale proceeds in the income test.
“Pensioners during exemption periods continue to be treated as homeowners for means testing purposes and are eligible for Commonwealth Rent Assistance if they are paying private rent for their alternative accommodation,” Ms Rishworth explained.
Ms Rishworth continued the rationale behind the bill was to better protect older Australians moving between primary places of residence while also freeing up much-needed housing supply.
“By encouraging more older Australians to downsize, we improve access for housing and appropriate housing for all people including growing families,” she said.
The bill is yet to be debated but, if passed, would come into effect in January 2023.