The drive to encourage older Australians out of their ‘too large’ homes in order to free up housing for younger families has passed another milestone.
Legislation to again reduce the eligible age to make downsizer contributions has passed both houses of parliament and is awaiting royal assent. The legislation changes the eligible age from 60 to 55. It was originally 65.
The age change was promised by both major parties ahead of the May federal election and the change is set to take effect from 1 January 2023.
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Almost 50,000 people have taken advantage of the program and it’s estimated there are about 1.3 million empty nesters who might now be enticed to participate.
Your views on downsizing
But whether the latest change will be embraced is doubtful, based on the results of YourLifeChoices 2022 Older Australian Insights Survey, which had 6148 respondents.
The survey found that downsizing was still not popular, with 56 per cent saying they would not consider the option. Twenty-three per cent were unsure and just 20 per cent said they would consider the move.
The figure was an improvement on the 2021 survey when 58 per cent said they would not consider downsizing.
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The latest survey also asked if the updated government incentives to downsize had changed their view. Overwhelmingly, 70 per cent answered no, 24 per cent were unsure and just 6 per cent said yes.
How the scheme works
The downsizer scheme allows eligible property owners to make a one-off post-tax contribution to their super of up to $300,000 when they sell their home. Both members of a couple can each make a contribution.
The deposit does not count towards the non-concessional super contribution cap.
In addition to the age change, from 1 January, the existing 12-month asset test exemption for sale proceeds that are intended to be used for a new home will be extended to 24 months.
Importantly for age pensioners, deemed income on the exempt proceeds will be calculated using only the lower deeming rate, which is 0.25 per cent.
What the minister says
Social services minister Amanda Rishworth said it was an important piece of legislation to help pensioners downsize.
The recent changes would provide recipients with more time to purchase, build, rebuild, repair or renovate a new home without the stress of their pension payments being affected, she said.
“We think everyone would prefer to see properties freed up for growing Australian families, rather than seeing pensioners feeling financially stuck in properties they aren’t fully utilising.
Read: Age Pension payment rates
“High transactional costs is one of the reasons older Australians are reluctant to sell and are holding on to their properties, for far longer than is ideal for their circumstances.
“More than 8000 income support recipients took advantage of the existing 12-month asset test exemption last year.”
Why you should seek financial advice
Personal financial expert Noel Whittaker warns that anyone considering downsizing should be sure to seek professional financial advice to ensure the strategy works well for them.
“Anybody in receipt of Centrelink benefits [should be aware] that these downsizer contributions may count towards the assets test and the income test, which obviously determines eligibility for the Age Pension and other benefits as well.
“In essence, when you downsize, you are moving money out of an exempt asset – the family home – and putting part of that into a super fund where the money will cease to be exempt.”
He says a downsizer contribution may also have issues for aged care costs as it will increase a person’s means and therefore can increase aged-care and home-care fees.
“I can’t stress enough the importance of getting expert advice if you are downsizing, or entering aged care,” he says.
Do the latest changes affect your view about downsizing? What more needs to be done? Why not share your thoughts in the comments section below?
we are on the Gold Coast & own a 4 bedroom 3 bathroom house & we would like to downsize to a 2 bedroom apartment in Melbourne however where we would like to live the price would be higher. So by downsizing to make room for a family we have zero incentive
And at the age of 55 or 60 we relocate where? A nursing home?? Or try and find a suitable small home or unit in this current difficult market? It’s a good idea, but not so easy in practice.
We would certainly like to downsize, however the thought of giving between 50 and 65 thousand to the government in the form of stamp duty is an absolute disgrace just for the act of moving home, tell em they are dreaming.
Maybe it should be like a first world country like NZ where there is no stamp duty and no capital gains tax, not to mention age pension at 65 without asset testing
Moved from Sydney to semi-country 8 years ago, upsized, rather than downsized to large country home on 5 acres in our 60’s & 70’s. Best thing we ever did as there is always so much to do to maintain both the home and acreage. We are both extremely healthy and have no problem maintaining our weight. However, we know at some time in the, probably, not too distant future we will probably need to downsize. Not looking to having to pack up and move again and fill the Government’s coffers with more stamp duty.
At the age of 55 many people still have children living at home, not out of high school or still in tertiary education. Not to mention this is the ‘sandwich’ generation who are likely also looking after elderly relatives. To then be pushing them into selling the still full family home is quite simply short-sighted not to mention naive in the extreme. But then this government is all about Marxist wealth redistribution and the break-up of the family unit.
Whilst providing assistance to people who are in an otherwise empty property they can no longer manage to sell up and move (if they choose) is one thing; pressuring people to move out just to award the property to someone younger is absurd.
I would love to downsize. Recently went through a relationship breakdown & bought a house that is now to big for me. Cant afford to pay Stamp Duty again (ex bought me out & paid no stamp duty) and I will have to wait 10 years before I am eligible.
If the Government is serious they will abolish stamp duty for genuine downsizers and remove the 10 year limit to accommodate those downsizers where there are extenuating circumstances.
Why would I pay stamp duty on another property (especially a double storey townhouse) as we are getting older and I have knee issues ? We still drive and only a single car garage is offered so the other car is left on the street. Most likely not in the location we want as I want to be able to walk to a shop to buy milk and bread, otherwise, I would have to rely on my kids. In our future planning, there is really no incentive or justification for us to move.
So stamp duty seems to be the biggest problem in downsizing. That and the lack of suitable dwellings, ie, single level and not too big. I’d love to get some analysis on the stamp duty angle in particular.