Maybe it's time to switch into reverse

In a period of rising house prices and rents, leaving the maximum level of rental assistance at $120 a fortnight or $3120 a year and setting the additional asset test exemption for nonhomeowners at only $146,500 has disadvantaged many retirees.

The latest blow is the lack of attention on the continued application of the income and assets tests designed in a period when investment returns and levels of home ownership were much higher. Both major parties have now confirmed their intention to continue to make the full age pension plus benefits available to homeowners without limits as to value, and only reduce their benefits if they own other assets or receive other income.

This raises the question of why virtually the same assets and income test applies to both homeowners and non-homeowners. Why, one reader asked, should there be any reduction in the pension of non-homeowners until they receive sufficient income to pay a realistic level of rent?

That certainly would be a major improvement and assist existing renters as well as other pensioners who choose or are forced to sell their home. Now that the maximum deeming rate is set at an investment return of 3.25 per cent, the 50 per cent income test leaves pensioners with a return of only 1.6 per cent on amounts above a small exempt level of income.

After the $3120 rental assistance allowance, this means that about $500,000 of financial assets is required to generate sufficient income to pay a modest rental expense of $200 a week. Changing both the income test and assets tests for non-homeowners for example by exempting the first $500,000 of financial assets from both the assets and income test would reduce but not totally remove the current bias in favour of homeowners.

With house prices rising steadily and the costs of borrowing at historically low levels, reverse mortgages are an increasingly attractive investment option for retirees.

Read the full article here: Maybe it's time to switch into reverse

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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