Allow retirees a HECS style way of tapping their asset wealth for retirement income (but keep the banks out of it)

This comment was made at Macrobusiness  (link may be locked – but there is a free trial available)

As others have noted – increasing the asset threshold would ensure that including the principal place of residence does not exclude all those retirees who warrant pension support.

For those whose assets would exclude them from a pension but would like a pension-like source of income, a HECS style system with recovery from their estate would work well.

The problem with reverse mortgages is that it just allows the banking sector to fabricate more accounting entries with trailing commissions attached.

A sensible policy for the ALP and Greens to pursue and demonstrate some policy brains.

And this

I don’t see any need to correct out land value. If the land value is high that remains a significant source of wealth.

Providing the threshold is reasonable, those sitting on very valuable PPOR could ‘tap’ their asset for a pension stream via a HECS style system where a charge is created and attaches to the title of the property.

Any attempt to gift the estate before death would be ineffective against the charge attached to the title.

If someone used the scheme and then decided to sell before death they would pay out the charge just as they would a mortgage.

A lot of less selfish retirees would welcome a way of tapping their assets that does not involve being gouged by the banking sector with their ‘reverse mortgage’ products.

…and this

http://www.humanservices.gov.au/customer/services/centrelink/pension-loans-scheme

That is very interesting.

I wonder where the 5.25% comes from or the rationale for any particular rate.

Presumably it is related to the sham idea that the government needs to ‘borrow’ the money from somewhere – eg a bank.

No need for the government to obtain the money from a bank who either created the money or from the RBA doing the same thing and passing the money to the govt via a bank.

A rate tied to CPI is probably all that is required to reflect the fact that repaying $100 spent today with $100 in 10 years time would involve a benefit to the retiree.

Hmmm

I wonder if the real barrier to having a lower rate, is that the Centrelink option would then be a lot more attractive than the reverse mortgage products offered by the banks.

The banks would no doubt argue/squeal that it would be unfair if they had to compete with the government’s power to create money.

LOL

…and this

This may be what he is referring to

https://www.moneysmart.gov.au/superannuation-and-retirement/income-sources-in-retirement/home-equity-release/reverse-mortgages

As should be clear to all by now there is absolutely no reason for the banking sector to be given yet another opportunity to create accounting entries (money supply) with a trailing commission attached.

If pensioners wish to tap their assets a HECS style system run by the government is the best way to avoid the trailing commissions that accompany money supply creation activities of private banks.

If the ALP took policy seriously they would be all over this like a rash.

…and this

Good to see a Bedroom Liberation Army veteran back on the battlefield!

Go get those granny sewing rooms and set them free.

Instead of a granny and pop coercive eviction campaign to free up some dusty bed rooms why not just build new bedrooms for those who want them?

An asset test pension system such as that outlined in the post along with a sensible graduated introduction of land tax will achieve the necessary rebalancing away from over capitalisation in residential real estate.

Allowing the charges to accrue against the estate (or more specifically as a charge on the title) is reasonable without the over the top idea of trying to drive people from their homes.

The above proposals have more than enough incentive for people to arrange their affairs (move out) if leaving a massive bequest is their sole objective.

…and this

‘…a window to sell…’

I thought you were more ambitious and were aiming for a few bedrooms.

Sorry.

Sounds like we are in agreement just that I am suggesting a more modest adjustment of the incentives that gives the retiree a real choice whether to stay in the home.

Stay and pay later (I.e when the reaper calls)

V

Can’t pay now (or in 3 years) and go.

…and this

“…That feels a bit slippery-slopey to me…”

Doc – Everything is part of a slippery slope.

When you mentioned people on the dole I could not help but think of a communist/socialist/leftist takeover of the nation and all its property.

More seriously, I am sure that with enough vigilance it would be possible to limit any HECS style scheme to those retirees who have substantial assets, are cash poor yet wish a way of turning that asset into a stream income as an alternative to selling their home.

If a retiree does not have assets above the asset test limit and no alternative income they would be entitled to the pension – as exciting as that option is.

Sure – future govts may decide to be nasty and reduce the asset limit, or increase the rate of interest on the HECS and also cut the pension to force more to apply for the HECS approach but that is the standard risk with government.

Just pays to be careful who we vote for and give some thought to some of the suggestions of Mr Morris.

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