Australians need to be able to access more efficiently their home equity in order to improve their retirement funding which is not sufficiently underpinned by the current system, according to the Household Capital’s Retirement Income Review which looked at the three main pillars of Australia’s retirement system.
After analysing the key reasons of why the system was letting down people, in particular the baby boomer generation, the report found that older Australians should be better incentivised to use their retirement funding by having this measure applied to all forms of equity release.
According to the study, the improved policy would allow support ageing as well as help the economy with no additional tax expenditure if the government’s downsizer measure wasn’t limited by the concessional treatment of $300,000/$600,000 (single/couple) cap.
The study also recommended the leverage of home equity to help retirees mitigate longevity and contingency risks as they needed an access to capital and income throughout the course of their retirement.
Following this, the superannuation funds should be required to offer a comprehensive retirement income packages to members, which would include access to home equity retirement funding, which should be a legislated minimum service provision for all superfunds.
“The broad policy and legislative framework for responsible access to home equity is in place, is comprehensive and sound. There are no major barriers to the transformation of home equity to play a foundation role in funding retirement,” Household Capital’s chief executive Josh Funder said.
“By helping retirees to better access and responsibly use home equity for retirement funding, several important areas of social and economic policy can be addressed.”
According to the research, there were a number of reasons why the current retirement system in Australia was about to fail people and these included a growing life expectancy while the system had not been designed to support people for 20 to 30 years of life beyond work.
Also, the superannuation was introduced too late, in particular for the baby boomer generation, which meant they were retiring with a median of $200,000 which would provide income for only around 10 to 15 years.
At the same time, the home equity remained the largest pool of savings for most of retirees and it should be appropriately and effectively used to improve people at retirement.
“Retirees are a large group with significant inaccessible wealth in home equity and major unmet needs in consumption for wellbeing. By unlocking home equity to improve retirement funding, we can enhance both the quality of life in retirement and economic activity,” Funder stressed.