Federal Labor piloting program to help retirees downsize

LAST week's budget had been mostly leaked so there were few surprises.

However, one item out of the blue was the announcement of a pilot program to provide a means test exemption for age pension recipients downsizing from their family home.

The idea is to remove the "loss of pension/pension entitlement" disincentive for seniors to consider more appropriate housing.

This aim is to assist senior Australians to downsize from the family home to more to appropriate housing - a smaller home, retirement village or granny flat.

They face the problem now of wanting to move but the surplus proceeds from the property sale could have an adverse effect on their pension.

The pilot will establish a special deposit account for pensioners into which they may  place up to $200,000 from the proceeds of the sale of the family home

The money placed in the account will be exempt from pension means testing for up to 10 years, provided that no withdrawals are made, and will earn interest.

To be eligible, the family home must have been owned for at least 25years. People moving to residential aged care will not be able to utilise the account.

The pilot is due to commence on 1 July 2014 and conclude on 1 July 2017 as is expected to cost around $112 million. More details will be available when the draft legislation is released.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.