Arguing that the adequacy of Australia’s retirement income system is still not strong enough, Michael Rice questioned the value of allowing first-home buyers to divert money out of their super to put into a deposit.
“There's a real range of those people may start owning a home but their super balance is going to be low,” Mr Rice said.
“I think it's a good discipline for people to have to learn to save money themselves; the super saver is forced on them.”
He noted the relatively small $30,000 cap on money that can be diverted out of super for a first home and said he believes it would be “easier for super funds to use their bargaining power to get cheaper mortgages to people”.
The family home and the age pension assets test
Continuing, Mr Rice told attendees at the Actuaries Institute’s Financial Services Forum the age pension assets test should include the family home.
“We should recognise that a family home is an investment. Years and years ago, in the ‘70s, the average house price was 2.5 times average earnings. So it was affordable, people could get it with two incomes,” he said.
“Now, where it's 10-12 times the average income, a big part of [older Australians’ reluctance to downsize] is part of their investment portfolio and you'll need to change the age pension assets test to get people to move.”
In a paper he presented to the forum, Mr Rice said including the family home in the means test at a fixed value of average earnings, while adding a multiple of six times average earnings to the asset test thresholds would “shift the pension to becoming a safety net”.
“Currently, the exclusion of the family home from the assets test creates distortions in savings patters and favours home owners over renters. In addition, it discourages downsizing, as the proceeds of downsizing would become subject to means testing,” he said.
Mr Rice suggested any changes to the means test’s treatment of the family home be introduced over a 10-year period to allow people time to adjust.