Business editor Peter Ryan reported this story on Tuesday, December 1, 2015 12:30:00

ELEANOR HALL: The Productivity Commission is urging retirees to consider selling their family homes in order to take pressure of the government's already weighty pension bill.



A report from the commission says retirees could also use reverse mortgages to unlock the equity in their homes.



The recommendations come as the Federal Government is considering changes to the superannuation system.



The Productivity Commission's Karen Chester has been going through the report with our business editor Peter Ryan.



KAREN CHESTER: We found from a survey that we undertook of over 1,500 older Australians that about 25 per cent of them have downsized and another 15 per cent are considering it.



It's primarily prompted by health reasons and manageability of the size of the family home when they make the decision to downsize. The biggest impediment though is really in the hands of state governments and local councils.



It's finding smaller, affordable housing within the postcode rubber band of where they live. So older Australians do want to age in place, some of them want to stay in the current family home and some of them do want to downsize but there are some impediments to them doing that.



PETER RYAN: So those impediments include finding the appropriate accommodation or downsizing options that would make it attractive for retirees or potential retirees to sell up.



KAREN CHESTER: That's right Peter there's a very strong preference for older Australians to age in place and age in place isn't just about the family home it's really within their local community.



PETER RYAN: The report says 80 per cent of retirees own their own home. So should they be considering selling up, using the proceeds and putting themselves in the position where they can get off the pension all together?



KAREN CHESTER: If you look at what sources of wealth older Australians have, most of the wealth is tied up in the family home. But it's remained a stubbornly liquid asset. Older Australians don't view it as a form of improving their well-being and retirement as a form of potential income stream, they view it just as a place to live.



And that's fine it's in their best interest to age in place or age in the family home, but they can do that and still access some of that equity in retirement. And we have done some very interesting analysis that shows that for a lot of Australian pensioners, those that we would maybe call asset-rich and income-poor or asset-modest and income-poor, so for a lot of those aged pensioners and 40 per cent of single age pensioners and 33 per cent of couple age pensioners.



If they were to tap into the equity of their family home during their retirement, so still live at home but tap into that equity and draw down on it during retirement, they would actually have a much better standard of living.



PETER RYAN: So by tapping into that equity Australians would have to get over wanting to have something to leave to their children or their grand children?



KAREN CHESTER: Many older Australians there still would be some bequest left for their children if they chose to do that and we are not saying that people shouldn't want to leave bequests that's a perfectly rational thing to do.



I think what we are more concerned about is where there is unintended bequests. Where people are holding onto the family home as a precautionary saving measure for themselves that they really don't need to and that they could still tap into that family home and have a better standard of living during retirement.



PETER RYAN: At the moment the family home is excluded from the means test when it comes to eligibility for the pension. Does that need to be reviewed?



KAREN CHESTER: Yes. I think what we found though was that by including some value of the family home in the age pension eligibility test, it doesn't really produce a huge fiscal dividend. It only reduces age pension reliance by about 3 percentage points.



I think what we think might be better policy bang for buck there is the Government actually signalling to older Australians that really the family home is a form of wealth that you should be looking at drawing on in your retirement.



PETER RYAN: So are you talking about the greater use or greater consideration of things like reverse mortgage products?



KAREN CHESTER: That's right. The biggest barrier to those products being used today is really just the attitudes and preferences of older Australians. They are really not interested in them.



PETER RYAN: So this will feed into whatever the Government decides to do in terms of the future of superannuation?



KAREN CHESTER: That's right Peter, it's not just about super, though, remember there's three wealth sources for funding retirement.



There is the family home which is worth just under $1 trillion for older Australians, there is the superannuation which for over 65 is $339 billion in balances, and then there is the age pension.



So they are the three ways of funding retirement and a holistic review would have to look at all three. Otherwise you end up with governments perhaps developing what you would call stranded policies with unintended consequences.



PETER RYAN: And one of those unintended consequences would be if there was a regulation that forced retirees to sell their homes you could have the situation where a lot of baby boomer properties going on the market at the one time, and that would not be very good at all for the property market.



KAREN CHESTER: So I think this is why the Government would want to step back and do a very considered review. The Government could come up with some very considered policies that are enduring without unintended consequences including property market as if suggested.



ELEANOR HALL: That's Karen Chester of the Productivity Commission with our business editor Peter Ryan. And there'll be a longer version of that interview on The World Today website later this afternoon.