The term ‘right-sizing’ has been in the news this week, but how does it differ from ‘downsizing’?
Essentially, it is the term being given to proposed legislation that offers new incentives for pensioners to downsize and thereby free up housing stock for young families.
The legislation will give pensioners an additional 12-month asset test exemption on their home sale proceeds to allow more time to purchase, build, rebuild, repair or renovate a new home before their pension is impacted.
The changes will also see the deeming* rate on sale proceeds intended to purchase a new home significantly lowered from 2.25% per annum to 0.25% per annum.
Minister for Social Services Amanda Rishworth said the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 would benefit thousands of pensioners and other recipients each year.
More than 8,000 pensioners downsized last year and it is hoped this number will increase if the changes are legislated.
“We don’t want people putting off downsizing to a more suitable home because they are concerned about the impact it could have on their payment rate and overall income,” Minister Rishworth said.
“These changes will give pensioners more flexibility to find a suitable new home and it will hopefully free up larger housing stock for younger families who need it.”
Currently, when a pensioner (or other eligible income support recipient) intends to use the proceeds from selling their home to purchase or build another home, those proceeds are exempt from the social security assets test for up to 12 months. An additional 12-month extension is available in extenuating circumstances – such as building delays due to a natural disaster.
The majority of these proceeds are usually deemed to earn income at the upper deeming rate, currently 2.25% per annum. This can have a significant impact on a person’s pension or other payment rate.
The legislation tabled will also extend the assets test exemption to 24 months for principal home sale proceeds. Pensioners during exemption periods continue to be treated as homeowners for means testing purposes and are eligible for Commonwealth Rent Assistance if they are paying private rent for their alternative accommodation.
*The deeming rate is an assumed rate of return on financial assets which is used in determining pension amounts.