Australia is an unusual place, not just because of our geography, our animals and our plant life, but because of the way we value our assets and the way we use them in retirement.
In most countries, when calculating how much someone has in assets when they are get-ting ready for retirement, you include the value of their house in the asset mix. In Australia, we don’t.
This has a curious effect on our retirement ready figures and pushes a significant burden on to the governments, State and Federal.
Think about it this way: West Australians are great homeowners. About 72 per cent of baby boomers (those born between 1949 and 1964) in WA own their own home but only 8 per cent of the State’s baby boomers have more than $100,0000 in retirement savings.
This means that for 92 per cent of WA’s baby boomers the cost of retiring, in terms of income, support services and health services is going to fall on to government.
This problem is made worse for the State because WA is over-represented in baby boomers — with 29 per cent of the population fitting the description — almost twice the national average. And almost all of them live in Perth.
The solution to this seems pretty simple and has to be on the Government’s agenda — include the primary place of residence in the asset test. If the Government did this the effects would be extraordinary. It would unlock almost $1 trillion in the value of the property owned by older Australians, take nearly 360,000 people off the pension, and drop nearly $6 billion a year into the government coffers.
Counting the family home as an asset is not as unusual as you would think. In countries such as Britain, where home ownership is relatively high, citizens are not able to access aged-care services and pensions while owning expensive property. This British model surely has to be an attractive idea for the Australian Government to solve some of the looming Budget shortfalls.
The reality is, though, that at the moment Australia has an immature market in financial services products that provide income after retirement. Our annuities market is only fledgling annuities.
For this to work and the housing stock to be unleashed as an asset that can be used we need a range of new products — reverse mortgages fractional sales and even breaks on stamp duty and other transaction costs for older Australians.
We also need a financial planning market ready to help people through the process of accessing their home equity in a way that is useful and economically fulfilling. At the moment financial advisers tend to shy away from these products because they are expensive and too complicated for most consumers.
