Australian retirees face pension risks when downsizing homes

Downsizing homes can release significant equity for retirees, but it may also lead to a reduction in age pension payments due to asset test thresholds. Data from over-50s developer GemLife indicates that among 1,474 purchasers across 12 communities, the average equity release when moving into a land lease community was $254,098.

For Australian pensioners, the asset test thresholds are $333,000 for single individuals and $499,000 for couples. Once assessable assets exceed these limits, the pension reduces by $3 per fortnight for every $1,000 over the threshold, which equates to a loss of $7,800 in annual pension for every $100,000 in assets above the limit.

The financial impact of downsizing depends on a retiree's initial asset position. For example, a single person starting with $250,000 in assets who releases $254,000 would see their assets rise to $504,000, resulting in a pension reduction of $513 per fortnight, or $13,338 per year.