The family home or a principal place of residence should be included in the assets test for the aged pension, according to the Australian Chamber of Commerce and Industry (ACCI).

The business lobby group said where a primary residence was valued above a debt-free $450,000, workers retiring at the age of 65 should not be eligible for a full or part pension for the first five years.

The politically sensitive recommendation was made in ACCI's pre-budget submission released today, which urged the Federal Government to implement spending cuts that would cause "short-term pain" for long-term budget sustainability.

The submission said retirees with assets, including the primary residence above the threshold, should instead be given interest-free pension loans against the value of the assets.

The pension loan — in effect a reverse mortgage — would be repaid when the property is sold, the borrower dies or goes into aged care.

"This provides retirees with choice so that they can remain in their primary residence, leave a bequest and afford their retirement," the submission recommended.

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However, the ACCI submission to include the family home in the pension assets test seems likely to be rejected by the Government.

Revenue and Financial Services Minister Kelly O'Dwyer told the ABC that all submissions would be considered, but signalled some were destined for the too hard basket.

"That would be very much against the principles of the Coalition government," Ms O'Dwyer said.

"Never before have we included the family home [in the assets test] and I don't see why that would change."

The harsh medicine proposed for future retirees comes amid anger and confusion over changes to tax benefits on superannuation and cuts to the aged pension for some retirees, which came into effect on January 1.

The submission raised issues associated with restrictions on access to the aged pension, including disincentives to avoid the early transfer of assets so retirees still qualify.

It also urged actuarial analysis and consultation to consider an appropriate threshold where the value of a primary residence would trigger blocked access the aged pension.

ACCI said four out of five retirees relied on a full or part-time pension and that a similar proportion over 65 owned their own homes, valued at about $1 trillion.

The chamber recommended the retirement age be regularly reviewed and gradually lifted to 70 by 2035.

Other recommendations included reducing government spending to 25 per cent of GDP, cutting the company tax rate to 25 per cent for all businesses over a decade and overhauling workplace relations.

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