Reconsider the home as a retirement income pillar: Actuaries Institute

Encouraging more Australians to access equity in their homes, combined with changes to stamp duty and the Age Pension, could give asset-rich, income-poor retirees a valuable income boost and help free up more housing for young families, according to a paper published by the Actuaries Institute.

The Institute's dialogue paper, More Than Just a Roof: Changing the Narrative on the Role of the Home, calls for a rethink on how the home is traditionally viewed, changing from a "nest egg" to a key financial asset retirees can use as an income stream in retirement.

It comes as more than three million Australians are set to enter the retirement phase in the next decade, a phase that will likely be longer than that of previous generations.

The paper's author, Deloitte partner and Actuaries Institute retirement strategy group chair Andrew Boal said the property price boom has resulted in many retirees who own their own home being trapped in an asset-rich, income-poor trap.

"While most retirees own their own home, 60% retire with less than $250,000 in their super. As a result, they're often living more frugally than they need to. But this doesn't need to be the case," Boal said.

"It's time for us to reconsider the role of the home as a fourth pillar of our retirement income system - alongside the Age Pension, superannuation, and voluntary private savings - which could be treated as another financial asset to fund retirement lifestyles.

"Of course, it is important that any home equity release schemes have clear disclosure and consumer protection, so people understand what they are getting into."

More than 80% of Australians aged 65 to 74 live in their own home, with retirees holding an estimated $1.3 trillion worth of housing equity.

However, many do not consider their home a financial asset that could be actively managed, aside from potentially covering future aged care costs or being left as a bequest.

"If retirees accessed 20% of the $1.3 trillion they hold in home equity, it would unlock about $260 billion to help fund what could be 25 to 30 years or more in retirement," Boal said.

Boal's paper suggested several policy reforms that the government could undertake. These include removing or refunding stamp duty for over-55s who downsize their homes and extending access to downsizer contributions to superannuation to include amounts released through equity release schemes, such as reverse mortgages.

Additionally, the paper proposed relaxing the Age Pension means test for a portion of the value of equity released from the family home when it is sold, for example, $300,000 per person or $600,000 for couples.

Boal also recommended providing Age Pension means test relief on money accessed through home equity release schemes, up to the same cumulative limits, and gradually including part of the value of the family home, above a reasonable threshold, in the Age Pension means test.