Australian Government to review retirement income system

Housing wealth an important component of retirement income

31 October 2019

The Australian Government has established an independent review of the retirement income system so as to ensure Australians are well-supported during their retirement. The Review will examine the means tested age pension, compulsory superannuation and voluntary savings, including home ownership, and consider the role of each in supporting Australians in their retirement.

AHURI welcomes the review and notes that research identifies that also having secure tenure and affordable housing are important parts of the equation for retirees. Currently in Australia, 9 per cent of Australians aged 65 and over—around 282,000 people—still have a mortgage on their primary dwelling when they retire, which can lead to having higher levels of psychological distress and lower levels of mental health than for older Australians who own their home outright.

In 2002 around one quarter of households approaching retirement held property other than the family home and this grew to 30 per cent by 2014

AHURI research that examined how Australia’s tax and transfer system was impacting household retirement choices found that older Australians decreased the proportion of their asset portfolios dedicated to financial assets, such as stocks or equities, over the period 2002 to 2014. This suggests households responded strongly to an increase in the perceived riskiness associated with equities markets, and to a lesser extent bond markets, in the wake of the GFC.

Instead, much of the wealth they withdrew from financial assets appears to have been allocated to pension/superannuation funds, with an increase in the proportion of their portfolios dedicated to pension/superannuation funds over the period 2002 to 2006. This is consistent with government policies that encouraged private savings via compulsory and non-compulsory superannuation contributions during this period, and the increase in the value of those assets prior to the GFC.

There was also an increase in the proportion of wealth dedicated to property. In 2002 around one quarter of households approaching retirement held property other than the family home and this grew to 30 per cent by 2014. From 2002–06 the proportion of wealth invested in property (excluding the family home) grew from 10 per cent to 16 per cent for pre-retirement and from 9 per cent to 15 per cent for post-retirement cohorts, and has remained fairly stable since then.

Owner-occupied housing also increased in importance over time for older Australians, representing approximately one-third of net worth in 2002 and increasing to more than 40 per cent of net worth by 2010. However, for those in the post-retirement age cohort, the wealth tied up in owner-occupied housing declined from 46 per cent of net worth in 2002 to 39 per cent in 2014.

The Review will issue a final report to Government in June 2020.