Retirement Income Review says older Australians should draw down on the equity in their homes to fund later life – will this include aged care?

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The Morrison Government may be looking closer at compulsory superannuation rates, but the Government’s much-anticipated retirement income review appears to be playing perfectly into the hands of the Aged Care Royal Commission.

The 10-month Review chaired by former IMF director and senior Treasury bureaucrat Michael Callaghan with Carolyn Kay and Deborah Ralston – which was handed to the Government in July – but only released yesterday – looked at a range of issues including the Age Pension, compulsory superannuation and voluntary savings and presents a number of findings for the Government to consider.

Not enough retirees tapping into family home

The key point for aged care and retirement village operators however is the section around the family home.

The Review concludes that while the Age Pension provides a strong safety net and reduces income inequality, the complexity of the superannuation system and low financial literacy means many retirees aren’t making the most of their assets.

Instead, it says Australians would enjoy a more comfortable retirement by accessing the equity on their homes and drawing down on their superannuation.

“Home owners also have the opportunity to access the equity in their home to supplement retirement income and manage longevity risk, although few currently do so,” it states.

“If this potential were realised, housing would take on an even more important role in the retirement income system.”

Royal Commission looking at options for older people to use home equity

Treasurer Josh Frydenberg said the report “will play an important role in better informing future public policy”.

“The report also reaffirms the need to simplify and enhance the efficiency of the superannuation system and lift home ownership rates as a driver of higher incomes in retirement,” he added.

The Australian Securities and Investments Commission (ASIC), which regulates businesses, has previously warned against ‘reverse mortgages’ – where a loan is taken out using the family home as equity with the loan repaid after the house is sold or the owner moves out or dies – because most borrowers didn’t understand the financial risks involved.

But the Royal Commission has raised the idea of tapping into home equity through reverse mortgages and other means – including former Prime Minister and Treasurer Paul Keating’s idea for HECS-style loans repaid out of someone’s estate after their death – to fund aged care.

The findings give the Federal Government a strong incentive to put more policies in place to support these measures – which could in turn allow older Australians to contribute more to the costs of care and reduce the burden on taxpayers to fund services.


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