New scheme to help older couples with low super
New legislation aimed at encouraging older Australians to downsize their homes is likely to help those couples with lower superannuation balances, consulting and actuarial firm Milliman Inc. said.
The new scheme will allow Australians aged 65 and over to sell a long-held home and divert up to $300,000 per person into their super as of July 1, 2018.
Those contributions are exempt from existing super contribution restrictions, including the age test, work test, and the $1.6 million tax-free balance cap, which initially raised fears the benefits would flow to wealthy retirees.
However, Milliman said its modelling shows that the relative benefit is skewed towards couples with lower super balances, due to its interaction with the Age Pension.
For example, a couple with just $100,000 in super could expect a $27,759 boost in their real annual income if they sold their family home and invested $600,000 of the proceeds into their super, the firm said.
A key reason behind this is the Age Pension eligibility threshold, for couples who own their own home, of $380,500 in assets, which cuts out completely at the upper limit of $837,000.
In other words, for a couple with a balance of $100,000, nearly half of the downsize proceeds, $285,500, would not factor into the Age Pension asset test, being under the threshold, Milliman explained.
Milliman Consultant Jeff Gebler said the analysis highlights the potential benefits from releasing home equity and downsizing, assuming retirees are equally or better suited to less expensive properties.
“The stabilising impact of the Age Pension means that it is also relatively more beneficial to retirees with lower super balances than those with higher balances considering similar levels of home equity available for release,” he said.
“However, the circumstances for individuals vary and will depend on factors such as their spending needs, availability of home equity, and housing preferences.”
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