Australian life event changes from the 1970s to now

[deborah]

An interesting report came out this week - http://cepar.edu.au/sites/default/files/cepar-research-brief-housing-ageing-australia.pdf - about how housing ownership is changing and what it means for the aging population.

One of the charts in it looks at how the age of life events has changed since the 1970s. We are often told that the last 8 years of life are the most expensive because we develop expensive health problems. This seems to me to be saying that people actually are living longer with health problems. However, there are other, interesting things that you can get from the graph - one being that people are starting to retire with mortgages, whereas in the past, they paid them off before retirement (the report identifies this).

[Lukim]

I suspect it is true that some people now are retiring with mortgages and that a lot of those people are then using their super proceeds to pay out / pay down the mortgage in order to be eligible for the pension.

My suspicion is that those people actually plan to retire with a mortgage and then use super to pay out the mortgage (it is not just by accident).  In one sense, that is actually quite a smart strategy - get to live in a nice expensive house which ends up being debt free after retirement and then live off the taxpayers' largesse.  Unfortunately, the pension is not that attractive.

Even though I am of the Baby Boomer generation, I was always told to pay off the mortgage as quickly as possible and avoid debt (particularly as interest rates were very high at the time).  I know that many of my fellow Baby Boomers did not follow the same philosophy.

[Bloop Bloop]

I'm flabbergasted that we pay the pension to old people who own an unencumbered asset worth hundreds of thousands. Surely it would be prudent to get them to reverse mortgage some of their assets before sucking the public teat. Otherwise there is a massive disincentive to save. The fact that most Australians save so little of their income is instructive of their poor financial planning. And given that the vast majority of Australians do not live in financial stress, you can't blame it on inadequate resources.

[deborah]

But @Bloop Bloop , how can YOU be flabbergasted? I’m sure you’ve written about this elsewhere. However, I think we’re all in agreement that the minority who are on the pension and who do have such an asset are definitely causing problems for the large numbers of those who don’t. It’s interesting that this report paints a poor picture of the quality of the housing that the elderly live in wrt their actual needs.

[mjr]

Surely it would be prudent to get them to reverse mortgage some of their assets before sucking the public teat. Otherwise there is a massive disincentive to save.

So, you'll tell the old couple/widows that they can't get the pension and need to take out a very-expensive government reverse mortgage, because the house in which they are living has appreciated a lot in the last 40 years.

Once said mortgage is taken out, they can't pay it off without selling.  So, even when the equity in the house has fallen to levels that you deem acceptable to get the pension, they still need to sell the family house to be able to discharge the mortgage.  Meanwhile, people in adjacent suburbs are allowed to stay in theirs.

While I'm sympathetic to the argument of who should access public finances, they're just playing by the rules.  Coming along after the event and moving the goal posts is bloody rude.  There're a bucket load of things that could be changed, policy-wise, but it's almost impossible to do without screwing people at the pointy end of the game.

By the way, I don't ever expect to get the pension, so I'm not bleating about my own privileged position.

[Juan Ponce de León]

The oldies spend much of their later working life structuring their affairs so that they can get the full pension in retirement.  It's a pittance, but it's free money and they feel entitled to it so they are damned if they are going to leave the free money on the table, even if they have to live in relative poverty they are determined to achieve it.

[mjr]

Some do, some don't, like anything in life.  All you can do is set the rules and let people go at it.

If people want to push for changes to the family home exemption for the pension assets test then of course they are welcome.  But it better apply to everyone.

[Bloop Bloop]

Some do, some don't, like anything in life.  All you can do is set the rules and let people go at it.

If people want to push for changes to the family home exemption for the pension assets test then of course they are welcome.  But it better apply to everyone.

How could such a change not apply to everyone?

I think it would be a welcome first step in encouraging self-sufficiency - for people to save for their retirement.

[mjr]

You won't get any arguments from me that the whole tax/pension/super scheme is a complete dog's breakfast.  Even if the population could agree on what to change it to (and it never will), how you get there from here in anything less than a generation without screwing over those at the tail end is beyond me.

Denying the pension to only some people despite their assets being mostly in the family home is an example of a policy not applying to everyone.

[LonerMatt]

Interesting that the length of the average mortgage is ~30 years when it used to be around ~25 years. I imagine that the increased length (which presumably is a function of high property costs) also results in more people having a mortgage when retiring.

Unfortunately with an aging population we face record high costs for health care and pension, yet decreased money coming from tax as the working population shrinks (and wage stagnation is exacerbated by inflation).

Certainly I've read some policy suggestions:
- Taxing super payments @ 15%
- Prioritising quality of life over length of life (IIRC some of the most expensive treatments largely prolong people's lives but are not measured against things like comfort, activity, quality of life)
- Switching health care to be predominantly preventative or proactive, rather than reactive

I wouldn't necessarily be the guy to draft these into policies but as a starting point might be worth discussing.

Plus ummm decrease housing costs would be rad!

[Gremlin]

Some do, some don't, like anything in life.  All you can do is set the rules and let people go at it.

If people want to push for changes to the family home exemption for the pension assets test then of course they are welcome.  But it better apply to everyone.

How could such a change not apply to everyone?

What if the "family" home wasn't owned by those living in it, but by a trust whose beneficiaries are the descendants of those living in the home?  Feels like the elderly parents could then still qualify for a pension but remain living in their expensive "not-family" home.  Of course, that's only if they are rich enough to be able to afford to structure their affairs that way in the first place.  I guess that's one way such a change may not apply to everyone...

[Bloop Bloop]

Some do, some don't, like anything in life.  All you can do is set the rules and let people go at it.

If people want to push for changes to the family home exemption for the pension assets test then of course they are welcome.  But it better apply to everyone.

How could such a change not apply to everyone?

What if the "family" home wasn't owned by those living in it, but by a trust whose beneficiaries are the descendants of those living in the home?  Feels like the elderly parents could then still qualify for a pension but remain living in their expensive "not-family" home.  Of course, that's only if they are rich enough to be able to afford to structure their affairs that way in the first place.  I guess that's one way such a change may not apply to everyone...

That would count as imputed rent. Sure, there might be loopholes that would be exploited. But that's no reason not to overhaul the present system. Just remove all asset carve-outs and have a one-stage assets/income test, say maybe $200k in assets (of any sort) and $20k in income.

[Gremlin]

Some do, some don't, like anything in life.  All you can do is set the rules and let people go at it.

If people want to push for changes to the family home exemption for the pension assets test then of course they are welcome.  But it better apply to everyone.

How could such a change not apply to everyone?

What if the "family" home wasn't owned by those living in it, but by a trust whose beneficiaries are the descendants of those living in the home?  Feels like the elderly parents could then still qualify for a pension but remain living in their expensive "not-family" home.  Of course, that's only if they are rich enough to be able to afford to structure their affairs that way in the first place.  I guess that's one way such a change may not apply to everyone...

That would count as imputed rent. Sure, there might be loopholes that would be exploited. But that's no reason not to overhaul the present system. Just remove all asset carve-outs and have a one-stage assets/income test, say maybe $200k in assets (of any sort) and $20k in income.

Imputed rent would impact the trust, surely not those "lucky" enough to "find" a below market rental property.

I'm not saying you shouldn't overhaul the present system.  I just think it's naive to think that you can find a way that would apply to everyone. 

[mjr]

Just remove all asset carve-outs and have a one-stage assets/income test, say maybe $200k in assets (of any sort) and $20k in income.

Wow.  Your view is that every old person has to run their assets down to basically nothing before they can get the pension ?  That'd work for most people on this forum, but would result in the general elderly public losing their home and ending up in rented bush humpies in their twilight years.

[Bloop Bloop]

Just remove all asset carve-outs and have a one-stage assets/income test, say maybe $200k in assets (of any sort) and $20k in income.

Wow.  Your view is that every old person has to run their assets down to basically nothing before they can get the pension ?  That'd work for most people on this forum, but would result in the general elderly public losing their home and ending up in rented bush humpies in their twilight years.

Does $200k count as "basically nothing"? Because about 40% of Australian families have less than that. I would rather the pension be directed to those families instead of letting already affluent oldies get even more affluent via government assistance. Surely if you have more than $200k in assets you do not require assistance to live a reasonable life.

[mjr]

You won't find many (any?) houses/town houses/flats in Australia for $200k and then you need money to, you know, eat and live on top of that.

So no, I don't consider that even close to affluent.

[Bloop Bloop]

I didn't say $200k was affluent. I said it wasn't basically nothing, which is the phrase you used. However, as the cap stands now, it encompasses both those with $200k (on the lower end of wealth, for sure) and those with a genuinely paid off, very expensive home (which is affluent) and both sets of these people get a pension. There is no justification for this other than to say that the ability of old people to not have to move from their family home, ever, should over-ride the massive budget constraint that the age pension causes to all the other spending initiatives that we could be prioritising instead.

[mjr]

I'm commenting on this:

Surely if you have more than $200k in assets you do not require assistance to live a reasonable life.

You also mentioned that there would be "no asset carve-outs", i.e. the asset value includes the residence.

[Bloop Bloop]

Right, so at what stage did you conflate "living a reasonable life" with being affluent? Cause the government is not there to make sure everyone can retire in affluence.

[mjr]

Righto, keep deflecting all you like.  I'm done.

[Lukim]

Maybe this supports the "universal income" policy.

Everyone over 18 (?) receives a distribution from the government (eg $2,000 per month) regardless of their income, assets etc.  High income earners will still pay tax but they will also receive the distribution from the government.  It is a very simple system and could be argued to be a very fair system also (depending on the level of distribution and the level of taxes required to support the distribution).

It is arguably a more universal form of wealth transfer / distribution than we currently have in Australia with all of the various welfare payments (particularly middle class welfare).

[middo]

It is time that a UBI was put on the political agenda.  Link it to a carbon tax, so repealing the carbon tax becomes very difficult.

But I digress.

In the '80s my wife was caught up in the assets test.  It's a l8ng story, but because of her parents (over 65) assets and family arrangements that were too hard socially for them to change, coming from a migrant background, she ended up begging for food at 15.

Unintended consequences can have serious ramifications and any changes should be brought in slowly and generally grandfathered.