Pensioner Home Equity to Pay for Pension

Productivity Commission chief says we should make pensioners rely on home equity to pay their pension.

In a time when all eyes are on pensioners to solve the failing fiscal policy of the successive and excessive governments of the last 30 years, yet another damming report comes to light.

Your home is being targeted for asset testing to qualify for a pension.

Instead of finding real solutions to solving Australia’s lack of funds to buy votes for the major parties, pensioners are attacked again. Not only did these pensioners build Australia to where it is now, while they were working and paying high taxes, they now have to bail out the fundamental failure that has been fiscal policy in Australia for the last 30 years.

In a report by the Sydney Morning Herald in February 2016, reporter Peter Martin reports that the Productivity Commission believes that asset testing the retiree’s home would reduce the number of retirees claiming a pension. The report said, “One way of forcing retirees to use the value of their homes was to include them in the assets test for the pension. If they were completely included a further 11 per cent of retirees would lose the pension and almost half would have their pensions cut.”

Let’s pull this apart a bit and see where it takes us.

Back in the 1960s, a young couple get married, buy a home and start a family. They work hard and build a country that becomes one of the wealthiest countries on the planet. Wealthy, not just because of its vast natural resources, but because the people – Australians – work hard, pay their taxes, save and pay off their homes.

Now, due to free trade agreements and various other reasons, Australians and the world have made China a very wealthy country. Some of those Chinese have come to Australia and invested in our property market and artificially inflated property values, and, hence artificially increasing the value of that couple’s home that they bought back in the 60s and planned to leave to their family when they finally pass on.

Now, government and private bodies are recommending to the government that this same couple should now fund their own pension by borrowing against their own home in what amounts to a reverse mortgage and draw down those funds to pay their own pension.

Let’s do the math.

A couple wants to retire at 65, and they require $30,000 per year to survive reasonably comfortably for 20 years. Let’s say a couple’s home is worth $1,000,000. They borrow $600,000 to support themselves for the next 20 years. That’s $30,000 per year, plus a bit of interest on the balance in the bank, but this interest would likely offset some of the interest owing on the loan. In a reverse mortgage loan, the couple does not have to make payments because the bank would take the home once they pass on so that the debt can be settled and any unlikely balance would go to their heirs.

A cursory glance at many investment websites gives one the sense that the artificially high values of the property market is considered a bubble at the moment and will burst anytime soon. If this couple’s home is valued at $1,000,000 currently and they borrow $600,000 against it to pay their own pension, what happens if the value goes down in a property bubble burst situation?

Their equity would be wiped out instantly. Then the bank would probably ‘call in’ enough equity to secure the new value at an appropriate ‘Loan Value Ratio’, leaving them with nothing left to live on. Or, banks being banks, would probably just walk in, evict the people and take their home and sell it to recover their costs, which in actual fact did not exist prior to the loan in the first place – but that is another story for another article.

It doesn’t sound like much of a policy to me. But it does sound like it’s a lazy way to partly solve the problem of funding pensions for the next few years. And at a time when multi-national companies and high net wealth individuals are stashing money overseas and avoiding paying any semblance of a fair share of the tax burden.

To attack pensioners again and again, just seems like the solution from a lazy un-imaginative group of slaves to the banking system.

Hasn’t this group of Australians done enough for this country?

Can’t we just leave them alone to enjoy the twilight of their lives to follow personal interests?

Can’t we just be grateful for what they have done for our country?

I’m Darryl Bothe and I am running for a senate seat for the Mature Australia Party. We will do our level best to ensure that real solutions are found and creative solutions are implemented to solve this and other financial issues that appear to be at the forefront of the governments mind.

Darryl Bothe

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