The Catholic Leader - July 2

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The Catholic Leader, July 2, 2017
Same dedication.
Same values.
Di erent name.
We’ve changed our name to re ect our strength, diversity
and Australia-wide membership. CSRF is now called
Australian Catholic Superannuation & Retirement Fund (ACSRF).
Visit or call 1300 658 776 today. ADVERTISING FEATURE
SUPERANNUATION
RETIREMENT
FUND ADVERTISING FEATURE
Home and retirement plans
Home
change:
“The Feder-
al Govern-
ment has
proposed,
in the most
recent
budget, to
allow peo-
ple over
the age of
65 to add
$300,000
to their su-
perannua-
tion fund
from the
sale of their
principal
residence.”
By Zilla Lyons
A GREAT deal of wealth is tied to
our homes.
The Federal Government has proposed, in the
most recent budget, to allow people over the age
of 65 to add $300,000 to their superannuation
fund from the sale of their principal residence.
Some people – especially those in larger cities
– are living in homes that have appreciated over
the years to be worth more than a million dollars
while they are struggling to fund their retirement
with little more than the age pension.
Additionally, the move may free up some
housing stock for young families who are seeing
limited housing inventory available for them
when they’re looking to buy.
There are a few caveats in the proposal.
The home must have been owned for at
least 10 years and be considered the principal
residence. In other words, the scheme would not
apply to, say, a rental property.
If the legislation passes, the existing voluntary
super contribution rules for people aged 65 and
older will not apply.
In other words, the person or couple downsiz-
ing will be able to contribute to super without
satisfying any work test, without fitting the usual
age contribution limits of 65-74 without having
restrictions relating to their account balance pos-
sibly exceeding $1.6 million.
A couple can take advantage of the meas-
ure on the same house, contributing a total of
$600,000 into their respective superannuation as
the result of downsizing.
These contributions will be in addition to any
other voluntary contributions people are already
qualified to make under existing concessional
(pre-tax) and non-concessional (post-tax) cap
rules.
One important measure to consider is that the
sales proceeds will be counted toward the age
pension eligibility tests.
I would encourage anyone considering such an
important financial and life decision to seek fi-
nancial and possibly legal advice from independ-
ent, qualified advisers before proceeding.
For self-funded retirees, the downsizing pro-
posal may have significant merit.
They may perhaps already be considering
downsizing to free up funds, particularly with
the high home values in many capital cities.
If this legislation is passed in its current form, a
couple could, after July 1, 2018, be able to invest
up to $600,000 from the downsizing to their super
accounts and have tax-free earnings and capital
withdrawals from their retirement accounts.
This might seem like an easy move for
self-funded retirees, or people who require an
incentive to move to a more suitable home that
matches their current lifestyle and needs.
Currently, the proposal does not require the
“downsizer” to purchase a new home with their
sale proceeds.
The proposal raises some key questions and
observations, particularly around age pensioners
– many of whom are asset-rich but income-poor.
What impact will this scheme have to their
retirement plans? Will it appeal to that group?
Presently, your principal residence is an ex-
empt asset from the Centrelink age pension tests
and the value is not capped.
An aged pensioner may be living in their
principal residence, which might be worth many
millions of dollars, but don’t have much money
to live on.
There may be family pressure on these indi-
viduals to sell the home because their children
– justly or not – might view this valuable real
estate asset as a financial entitlement. If the sale
can provide a more comfortable retirement,
however, that could be preferable.
The impact that downsizing could have on a
person’s age pension status cannot be understat-
ed. While there is a proposed change that would
allow the proceeds of downsizing to exceed con-
tribution caps without penalty, the age pension
assets test will still apply.
Currently, a single aged pensioner can have
up to $250,000 in assets and receive a full age
pension. Over a 20-year period, a single aged
pensioner entitled to the full age pension – ignor-
ing any supplements – will receive $287,287 in
today’s dollars (assuming a five per cent rate of
return). Suppose that that person had $240,000
in existing assets; if they were to downsize and
deposit $300,000 of the proceeds into super, they
could lose their entitlement by breaching the
asset test threshold with a total of $540,000 in
counted assets.
As the limits are higher and the age pensioner
couple both share the same house, the effect may
not be as pronounced as for an individual.
The current asset test threshold for a home-
owning couple with combined assets below
$375,000 means they’re eligible for the full age
pension.
If their assets are between $375,000 and
$821,500, they’re eligible for the part pension.
The downsizing scheme, as it is currently pro-
posed, may have limited attraction for most age
pensioners because it could make some people
lose access to the Age Pension.
As the cost of living continually increases
however, we need to find a way to help people
access the value of their home.
In The Conversation, UTS professor Peter
Wells writes: “Our current retirement system is
simply not sustainable, as our population ages
and life expectancy increases. Australia incentiv-
izes people to structure their finances so they are
asset rich and cash poor. They are then able to
claim the pension and can leave an inheritance,
which is in part paid for by taxpayers.”
Let’s assume that a cap of $1 million applied
to the Centrelink-exempt value of the principal
residence.
Would this influence the situation?
Currently, there is a formal Government loan
scheme that provides payments to bring part-age
pensioners up to the full age pension payment
without requiring the individual or couple to
vacate their principal residence.
Operating similarly to a reverse mortgage,
the loan balance is repaid when the principal
residence is sold.
In this theoretical case, if an aged pensioner
chose to remain in an existing property with a
value exceeding $1 million, they could lose part
or all of their current age pension entitlement
under the asset test.
A pension loan scheme that uses the home
value as collateral could help a person or couple
replace age pension income by leveraging the
value of their home without being forced to sell
it, all without negatively impacting the value of
their home.
Perhaps if the exempt value of the principal
residence was capped – again at, say, $1 million
– and any value above the amount was counted
toward the Centrelink assets test, we might see
more downsizing because the value of that home
would already be counted against your entitle-
ment.
A broadened pension loans scheme would be
an integral component of this proposition.
These hypothetical changes to the welfare
system in Australia – including the Age Pension
– could make the system more sustainable for fu-
ture generations while potentially increasing the
supply of homes available on the market which
would help to stabilise house prices.
This could also reduce the escalating debt
burden which is preventing our children and
grandchildren from being able to own their own
home, improving Australia’s overall economic
stability.
Any views, opinions or recommendations of
the writer is solely their own and do not in any
way reflect the views, opinions and recom-
mendations of Australian Catholic Superan-
nuation. The views, opinions or recommenda-
tions in the article may change in the future.
GENERAL ADVICE WARNING
Any advice contained in this document is of
a general nature only, and does not take into
account your personal objectives, financial
situation or needs. Prior to acting on any in-
formation in this document, you need to take
into account your own financial circumstanc-
es, consider the Product Disclosure State-
ment for any product you are considering,
and seek independent financial advice if you
are unsure of what action to take. Financial
advice is available to members through an
arrangement with Industry Fund Services Pty
Ltd (AFSL 232514). Call us on 1300 658 776.
Zilla Lyons is a regional manager with
Australian Catholic Superannuation and
Retirement Fund.