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This measure provides an income and assets test exemption for pensioners over age pension age who 'downsize' their home.
Description of the measure
This measure provides an income and assets test exemption for pensioners over age pension age who ‘downsize’ their home.
The exemption is designed to help pensioners who want to move to a home that better suits their needs, but are concerned about the possible impact extra money in their bank account (after downsizing their home) may have on their pensions.
Questions and answers
How does the trial program and the pension means test exemption work?
Seniors over age pension age who have lived in and owned their home for more than 25 years, who then downsize to a home of lesser value, will be able to place at least 80 per cent of the excess sale proceeds (to a cap of $200,000) from the sale of their former home into a special account.
This special account will be exempt from the pension income and assets tests for up to 10 years, or until a withdrawal is made from the account, whichever occurs first.
Who is eligible?
Eligible seniors include pensioners over age pension age, who receive the:
- Age Pension
- Carer Payment
- Disability Support Pension
- Wife Pension
- Widow B Pensioner, or
- Service Pension/Income Support Supplement from the Department of Veterans' Affairs
The special account and pension means test exemption will not be available for people moving to residential aged care or for people whose former home or new home is outside Australia.
The special account will be available for eligible pensioners assessed as homeowners by Centrelink after moving into a retirement village or granny flat.
Will my pension stay the same after downsizing and investing in the special account?
If your excess sale proceeds are $200,000 or less, you place 100 per cent of the excess sale proceeds in the special account and your other income and assets will remain the same. Your pension amount will also remain unchanged.
If you choose to place less than 100 per cent of the excess sale proceeds in the special account, the remaining funds that you keep could affect your pension depending on how the money is used or invested.
If the excess sale proceeds are more than the $200,000 cap, then funds exceeding the cap may cause a reduction in your pension payment (but it would be less of a reduction than under the current rules). It would also depend on how the money is used or invested, and what other assets and income you have.
Why is the scheme only available to seniors who have lived in and owned their home for over 25 years?
The measure is aimed at people who would not have downsized their home because of concerns about their pension rather than people who would have moved anyway.
Why does at least 80 per cent of the proceeds have to be invested in the special account?
The measure is aimed at people who would not have downsized their home because of concerns about their pension. Unless people downsize to a home where the price difference is very significant, they would continue to have a similar pension amount and an asset that is not readily accessible.
How does the cap of $200,000 work?
Single pensioners and pensioner couples can place up to $200,000 of excess sale proceeds in the special account and have it exempt from the pension means test. Any amount of excess sale proceeds over the amount of $200,000 will be assessed under the pension means test. For example:
- If excess sale proceeds from the sale of the former home are $100,000, the pensioner would be required to place at least $80,000 into the special account (80 per cent)
- If excess sale proceeds from the sale of the former home are $500,000, the pensioner would be required to place $200,000 into the special account (capped amount)
Can I make a withdrawal from the special account before the end of the ten year exemption period?
A withdrawal can be made from the special account for any reason before the end of the ten year exemption period. However, if a withdrawal is made, the pension income and assets test exemption on the entire account would be removed.
What is the definition of 'Excess Sale Proceeds'?
Excess sale proceeds is the sale price of the principal home, less any valid encumbrance such as a mortgage, less the purchase price of the new home.
What is the definition of 'Special Account'?
The government is working with financial institutions to establish and offer these accounts.
When does the trial start?
Subject to the passage of legislation, the trial will commence on 1 July 2014 and will be closed to new customers from 1 July 2017. The trial will then be reviewed.
For those who benefit from the exemption during the trial, the pension means test exemption would continue for up to 10 years or until they make a withdrawal from the special account.
More detailed information will be available on our website prior to this measure commencing.