Finance Retirement You can’t eat your family home. Or can you?
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You can’t eat your family home. Or can you?

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Social Services Minister Scott Morrison was forced to hit the airwaves on Tuesday to defuse reports the government was preparing to include the family home in a means test for the age pension.

On the hunt for budget savings, the government could be spending as much as $7 billion a year in age pension payments to retirees who have considerable equity locked up in the family home.

Such a move could trigger a backlash among retirees, who argue they should not have to move out of a house they have lived in for decades just to put food on the table.

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Labor frontbencher Tanya Plibersek claimed that “cash poor” retirees can’t eat the family home. “You can’t pay your electricity bill with it,” she said.

In denying the reports, Mr Morrison said he was protecting “cash poor but asset rich” retirees from being forced to sell up and move out of the family home to fund their retirement.

But experts say you can ‘eat your house’ – or access the capital stored in your house to fund your retirement while still living in it. But it requires government action to make it a reality.

Tanya Plibersek
Labor frontbencher Tanya Plibersek came up with the “eating your house” concept. Photo: Getty

Have your cake and eat it

Ian Yates, chief executive of Council of the Ageing (COTA), has been trying for some time – so far unsuccessfully – to persuade the government to have a comprehensive retirement income review. This includes looking at ways to allow retirees to live off the value of their house while still living in it.

“We are really interested in how people are going to unlock some of the equity in their house improve their retirement incomes,” he says.

The answer, he says, is for financial service companies to lend retirees a portion of the value of their house in the form of an income stream payment, or “annuity”.

“If you are sitting on a house that’s worth a bit of money but not exorbitant, and you’re on a full pension, that annuity could actually as much as double your income. And what do you do with that income? You go and spend it. So it turns into more money flying back into the economy, more money flowing into income tax, more income flowing into company tax, and so on.”

These kind of annuity exists in other countries such as the UK. However, no one offers them in Australia, meaning the only way to access the capital in your home is via a reverse mortgage.

Role for the government

While no private company provides the sort of annuity that Mr Yates talks about, the government already does, through a little-known scheme called the ‘Pension Loan Scheme’.

house
You could cash in the value of half your house, and pass the rest on to your estate. Photo: Shutterstock

The PLS is essentially a reverse mortgage. It charges lower interest rates for this loan than banks, and pays it in fortnightly instalments, like the age pension. However, the snag is it is only open to people who do not qualify for the age pension.

According to The Australia Institute’s Tom Swann, there is no reason why the government should not extend this scheme so that it is available to everyone.

If it did so, it would solve the “asset rich, cash poor” problem that is the argument for exempting the family home from the means test.

“We hear a lot of discussion about the difficulty of unlocking the capital in a home without forcing retirees to sell up and move out,” says Mr Swann. “But the solution to that problem already exists in the PLS.”

While such a program would be expensive initially, like the HECS it would soon begin to pay for itself.

According to Mr Yates, whether the annuities are offered by the government or by private companies is a secondary concern.

He says the government needs to realise there are innovative ways of helping people live better during retirement, while simultaneously taking pressure of the budget.

“What I’m saying is, all these things need to be on the table, rather than just cutting pensions,” he says.

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