Opinion is split on new incentives for ‘downsizers’ unveiled in the federal budget on May 9, 2017, to allow individual retirees to pour up to $300,000 from the sale of their principal residence into their superannuation fund.

From July 2018, people who have reached the age of 65 and owned a property for more than 10 years will be able to make a non-concessionary contribution into super from the sale of their home. This applies regardless of whether it would breach the $1.6 million pension fund transfer balance cap.

Under the new rules, a retired couple could stash up to an extra $600,000 into the tax-advantaged setting, while allowing each member of the couple to boost their respective retirement income accounts to as much as $1.9 million. However, industry associations think those lower down the socioeconomic scale will be the main beneficiaries.

Potential help for women, middle earners

“Predominantly, it will not be the people at the higher end of the homeownership and superannuation scale who will benefit from home equity release,” Association of Superannuation Funds of Australia chief executive Martin Fahy told Investment Magazine.

“It seems to be women who will benefit – particularly surviving spouses and separated women faced with financial and health challenges who are downsizing from relatively modest to even more modest housing.”

Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck said the policy was “not aimed at rich people putting proceeds from the sale of their $3 million harbour-side mansion into their super”. Scheerlinck said the policy would help middle-income earners, who will be able to sell their property and put in $300,000.

The Financial Services Council said it was supportive of the government’s efforts to remove barriers to downsizing by enabling older Australians to contribute windfall gains from the sale of their home to superannuation without breaching super caps.

“The proposed reforms to allow consumers to save through their superannuation for their first home are well designed, [as they do not] undermine the integrity of the superannuation system,” FSC chief executive Sally Loane said. “Allowing retirees to downsize and contribute up to $300,000 to their superannuation accounts will free up much-needed supply in housing markets and help retirees monetise their largest asset – their home – to help fund their needs in retirement.”

StatePlus chief client officer Jason Andriessen also welcomed the policy.

“Accessing part of a home’s equity to fund a better retirement outcome is an excellent idea for retirees. Eighty per cent of retirees own their own home but they don’t have much superannuation to live off,” Andriessen said. “Freeing up capital of $300,000 per single – or $600,000 per couple – to reinvest in superannuation will be a real life-changer for many Australians.”

Some industry voices express caution

On the other hand, actuarial consulting firm Rice Warner cautioned that, for the masses, it might not be a good idea to capitalise home equity.

“A couple owning a home and with other assets, including superannuation, of $350,000, would be eligible for a full age pension of $34,800. If they capitalise $600,000 and put it into superannuation (or the bank), they lose the whole pension. While they will start getting a part pension later as they spend their assets, the pain is likely to be too great to endure,” Rice Warner’s analysis reads.

NGS Super chief executive Anthony Rodwell-Ball was also cautious about the proposal, and recommended members seek advice for their situation.

“We can see the rationale of the government introducing this incentive to reduce barriers for older people to sell their homes; however, in reality only a small cohort of people will benefit,” he said. “Those seeking to balance a small Centrelink pension and a higher superannuation balance will need to look closely at this incentive.”

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