Housing downsizing incentives: Are they worth it?

HLB Mann Judd, Jonathan Philpot, federal budget, budget 2017, downsizing, retirement, superannuation, australian superannuation, retirement income, age pension, asset test

The federal budget’s concessions for retirees choosing to downsize their home, while potentially beneficial, may not be the best option for all Australians, an expert has cautioned.

HLB Mann Judd’s wealth management partner Jonathan Philpot says the ability to add $300,000 from the sale of your home into your superannuation, as outlined in the recent budget, could leave some retirees worse off financially.

“The government has proposed that retirees will be able to put an extra $300,000 into super from the proceeds of selling their family home after they turn 65. For a couple, it means being able to contribute a further $600,000 to their super,” Mr Philpot said.

“This strategy may not suit everyone and people should fully investigate the implications it may have on areas such as the age pension before taking action.”

One of Mr Philpott’s prime concerns is that family homes are not part of the age pension asset test, where superannuation balances are.

“With the new assets test taper rate of $3 a fortnight for every $1,000 of assets, this works out as a reduction in pension payments of $78 in pension payments for every $1,000 now included in the assets test,” he said.

For a couple with $500,000 in assets that count towards the age pension as well as their own home, putting an additional $300,000 into super through the sale of their house would reduce their age pension by $23,400 a year, Mr Philpot said.

“This means they have to invest the $300,000 and produce an after-tax return of greater than 7.8 per cent a year in order to be ahead of the current position, not an easy task in today’s environment.”

For retirees who already have assets above the threshold, however, the new incentive would allow them to “further increase their wealth in super” and could prove beneficial, Mr Philpot said.

“Overall, it is a positive move for many people who are over 65 and [are] no longer able to contribute any more into super,” he said.

“This could include those who do not pass the work test, this would be the majority, or who have total super balance above $1.6 million – this would be the minority. A couple with accumulated assets outside of their home of greater than $821,000, or a single person with more than $546,000, may benefit from these changes.”

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