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The government’s recently announced trial program, ‘Housing Help for Seniors’, doesn’t go far enough, according to POPI Australia general manager, Brenton Harris - and, he says, appears to be more of an ‘electoral sweetener’ than anything else.
“For many seniors, the least-favoured option to solve their financial distress is to down size”.
A report released in April, 2013 by the Australian Institute of Health and Welfare (AIHW), indicates more than 90% of homeowners wish to remain in their home, rather than move into aged care or to move at all.
Even ignoring this statistic, argues Harris, the restrictive terms surrounding the trial program mean that for many homeowners, there is little, if any, financial advantage, due to the value of their current financial assets, the modest value of their home and the costs required to downsize and buy again.
The program allows seniors to place up to $200,000 from the ‘surplus’ they receive from downsizing into an isolated account. That sum is then exempt from the income and assets test for Centrelink purposes.
However, for the $200,000 exemption to be relevant, the homeowner must have other assets that would cause the assets test to be exceeded. ABS data reflects that in 2007, some 55% of those over the age of 65 were totally reliant on the age pension as their only source of income.
“In other words, they have minimal other assets,” says Harris. “So one has to ask, how many pensioners will this program really help?”
Further, to qualify for the exemption the homeowner cannot withdraw these funds, including earned interest, for 10 years.
“Significantly, for many homeowners the surplus funds they receive after downsizing will be less than the $200,000, thereby suggesting that the government’s focus is on the homeowner relocating to more suitable housing for the aged rather than genuinely improving the cash flow to the homeowner as a result of the exercise. The way that the program is designed, any senior wanting to improve their cash flow will simply need to consume any other assets first and then draw out the surplus proceeds second.”
“Whilst at face value the program has merit, it is unlikely to significantly change the lives of many seniors in distress,” he argues.
“Australia is ageing and the cold, harsh reality is that more and more are aged pension-reliant and either without any superannuation at all, or limited funds at best. They are struggling to meet the costs of living, let alone have money for the nicer things in life. The pressures that this will impose upon our economy in years to come is like a perfect storm…a tsunami if you will,” says Harris. “We can’t afford to ignore this issue.”
#pb# Harris, a financial planner and his colleague, Sean Ryan, an Adelaide-based solicitor, have developed a model that allows a senior homeowner the ability to use their home to generate cash flow for their future without the risks and worry that reverse mortgages present.
Dubbed a ‘popi’, the model does not erode existing equity, unlike other equity release products which involve either a loan or a part sale.
“It is not a reverse mortgage, there is no loan, no change of title, no corporate failure risk and a controlled release of funds. Further, there is no restriction on the use to which the cash can be put thereby allowing the homeowner to benefit from it according to their own needs as driven by the various stages of retirement. Early retirees may use the cash to travel and thereby experience a better quality lifestyle, whilst older retirees may want the cash flow to assist with the costs of in-home care."
“To preserve the desire of many to stay in their home rather than downsize the increased cash flow can assist in maintaining the property, which is a common concern amongst those living in bigger family homes.”
