THERE are calls to allow baby boomers to access house equity as most retiring today do not have enough superannuation to support more than 25 years of retirement.
The release of the Retirement Incomes Review is being seen as a first step towards a fairer and more sustainable retirement income system for older Australians by the Council on Ageing.
After multiple calls from COTA, the federal government has released the Review’s Final Report to the public for analysis and observations before the forming of their policy response.
“We welcome the confirmation that our retirement income system is doing well for most older Australians, but there are many who are slipping through the cracks. Many women and people in the private rental market are among those worst off in retirement,” said Ian Yates, chief executive at COTA Australia.
“It is vital to emphasise that this Review was not just about compulsory superannuation, which is only one, albeit very important, part of a total retirement income system, in which the adequacy of the age pension and other public policy supports, such as health and housing, for all vulnerable retirees is also of paramount importance,” Yates continued.
COTA Australia plans to promote discussion around issues such as increasing housing provision, security and utilisation as well as improving the situation of retirees in the private rental market.
COTA also places great emphasis on increasing equity in retirement by redesigning tax incentives that the Review shows disproportionality favour higher income earners and encouraging retirement income and assets be used to optimise quality of life.
“There has been some unfortunate politicisation of retirement incomes issues, particularly around the level of the Superannuation Guarantee. This Review provides a basis for a more evidenced based discussion of that and many other issues must put this to rest so policymakers can get on with the job of ensuring older Australians have a sustainable, just and accessible retirement income system for the future,” said Yates.
“We look forward to contributing to robust and rational testing of and discussion about the Review’s finding and observations and we will continue to advocate for a system where all Australians can have a dignified and fulfilling retirement,” concluded Yates.
Household Capital has applauded the Retirement Income Review’s support of house equity access for baby boomers.
“For most baby boomers, voluntary savings outside of superannuation means the equity in their home,” said Dr Joshua Funder, chief executive officer of Household Capital.
Dr Funder commented on the reality that Australian homeowners who enter retirement today, do not have enough superannuation to support more than 25 years of retirement, after most Baby Boomers only began to accrue 3% superannuation halfway through their working lives.
With Australians living longer, retirees need to plan for 30 plus years, with 75% of Australian retirees maintaining a strong intention of remaining at home and no wish to downsize.
“There is growing pressure on both the government and individuals to fund in-home care as well as aged care. Collectively, Australian retirees own over $1 trillion in home equity; at retirement, median retirees have saved around $200k in superannuation and over $700k in home equity.
“Available home equity can double the amount of their superannuation and help fund their retirement. Accessing home equity can offer a responsible, long-term solution to allow current retirees to boost their retirement funding,” he continued.
The report establishes home equity as the third pillar of retirement funding, with the government creating principles where retirees can voluntarily improve self-funded retirement outcome by supplementing benefits and superannuation with the $1 trillion home equity already saved.
A lack of awareness of home equity retirement funding options was identified as challenge in ensuring the effectiveness of the national retirement funding system, especially as many Australian retirees were found to be unaware of the potential to unlock voluntary saving through their homes.
80% of Australians are aware of their home as a significant asset to fund retirement, 43% of retirees are open to accessing their home equity to fund retirement and would draw 13% of their home equity to do so, according to research by UNSW.
“Home ownership is an integral part of Australian wealth creation and it should also be widely available for Australians to voluntarily draw on their wealth to fund their retirement. We have the technology to efficiently deliver home equity retirement funding across Australia,” said Funder.
The report underlined the importance of home ownership to achieve security in retirement, not only as an asset to drawn on for income but by removing the need to pay rental accommodation.
“Australian retirees are worried about their lives. Providing adequate, secure long-term funding, including access to home equity, can give our senior citizens confidence in the future,” concluded Funder.