Flexible access to housing, funding and care, not new taxes, to meet the Aged Care funding gap
The minister for Aged Care has announced yet another aged care commission and is exploring new taxes on working Australians to support an ageing population. Meanwhile the Leader of the Opposition is open to increased self-funded contributions to meet the costs of retirement but has ruled out any form of “death tax”. Bipartisan commitment to older Australians is what we really need, not another commission. Flexible access to housing, funding and care, not new taxes, is the way to meet the Aged Care funding gap and give confidence to a generation.
Australia has a unique opportunity to meet the challenge of an ageing population – our strong longevity and active lifestyles are good problems to have. We have a sustainable, means tested pension system that will not bankrupt the public purse, but it is not generous by international standards. We have universal, compulsory superannuation but account balances are inadequate for most baby boomers who only started contributing halfway through their working careers. We also have an excellent healthcare system, but demand for aged care and related services will quickly outstrip any tax-and-transfer from the decreasing portion of the working population.
Often overlooked in the policy debate on ageing, Australian seniors enjoy high quality housing – the family home – where the vast majority of retirees prefer to age in place. The family home has multiple important functions to support the good life in retirement. Most retirees do not want to downsize as it is expensive, disruptive and reduces community connection. Most retirees also want to receive aged care at home for as long as possible and prevent premature entry into institutional aged care – saving us all a great deal of money. And most importantly, ageing in place in the family home delivers confidence to older Australians to continue active lives in our community, improving both retirement outcomes and economic activity at the same time.
The family home has another critical role to play in meeting the challenge of an ageing population – funding. Australian retirees are now the wealthiest retirees in the world, however most of that wealth is tied up in their homes. Home equity is four times the value of superannuation for the median retired household. The federal Retirement Income Review led the way globally by including home equity among the three pillars of retirement funding and Australia has the world’s best regulation to help ensure responsible access to home equity retirement funding.
There is now an expanded range of options for retirees to access the wealth in their home to fund retirement, including the government’s own reverse mortgage – the Home Equity Access Scheme (HEAS). This year, almost $1 billion of home equity will be newly accessed by older Australians to boost their own retirement funding, the biggest year ever, with around 10% of that amount provided by the HEAS. By contrast, British retirees can choose between hundreds of competitive products that have delivered over £5 billion of home equity per year to fund an ageing population.
Data from a Your Life Choices survey show that over 78% of older Australians are either “concerned” or “very concerned” about the potential introduction of an inheritance tax and 72% of older Australians were similarly concerned that the government would force them to use the HEAS.
Australian retirees have already saved $1 trillion in home equity, the value of their own homes. Instead of a new 1% levy on workers or an inheritance tax, we need to help retirees draw around 1% of their home equity per year, an additional $10 billion per annum of self-funded private wealth to sustainably fuel an ageing economy.
Years of inflation have widened the gap between retirement incomes and the cost of living. About the only good news for retirees has been steady house prices – their main store of savings. Australians have not had widespread access to home equity as part of retirement funding. With government policies promoting ageing in place, we need to radically improve the awareness of the family home as the best place to live and the right way to help fund retirement, including aged care.
Finally, we need to commit to clear principles that deliver better outcomes for our seniors: greater awareness of home equity as the third pillar of retirement funding; confidence in voluntary self-funded retirement from home equity as private property; trust in retirement entitlements and wealth protections; innovative, scalable market-based solutions; purpose-based funding to meet the challenges of retirement housing, funding and aged care.
Working together, Australia can lead the world in providing superb retirement housing and funding and at the same time, overhaul our aged care system and seize the opportunities of an ageing population.