KPMG unveils plan to move low-income renters towards home ownership
KPMG wants to see changes that would help retirees, especially women, live more comfortably. (Julian May: photoxpress.com)
Single retirees would get increased rent assistance and low-income Australians would be given a pathway towards owning their own home, under a proposal by consulting firm KPMG.
- The KPMG paper suggests a co-investment scheme to help lift people out of poverty and into home ownership
- The paper, focusing on older women’s financial disadvantage, will be presented to both major parties ahead of the election
- If changes are adopted, employers would be required to pay super when people take paid parental leave
KPMG’s paper, Delivering equity: a new deal for pensioners who rent, also calls on the Federal Government to change the law so that employers must pay people super regardless of their monthly earnings and when their worker takes paid parental leave.
The paper, the third in a series by KPMG examining financial discrimination against women in Australia, will be presented to both major political parties to consider ahead of the federal election.
It makes various recommendations aimed at helping 1.3 million low-income Australians, 59 per cent of them female, move out of financial hardship.
KPMG national chairwoman Alison Kitchen said women typically earned less than men during their working lives, and also did the majority of unpaid caring work.
“By the time they retire, women will have little to show financially for their hard work,” she said.
Not only do women retire with less savings than men — Association of Superannuation Funds of Australia figures show the average balance at the time of retirement in 2015-16 was $270,710 for men and $157,050 for women — but they are at much greater risk of poverty, especially if they do not own their own home.
The KPMG paper follows a recent report from the Grattan Institute that found most Australians will retire with enough savings, except older women renting, and also suggested Commonwealth Rent Assistance be increased.
End poverty, increase rent assistance
KPMG supports Grattan’s call to have a 40-per-cent increase in the maximum rate of Commonwealth Rent Assistance (CRA) in order to lift the payment in line with increased rents paid by low-income earners.
The current maximum fortnightly rate for a single person without children is $135.80.
The 40-per-cent hike would amount to an extra $1,410 a year for single retirees.
The Grattan Institute estimates the change would cost the federal budget about $1.2 billion a year, of which $300 million would relate to retirees.
KPMG has also recommended the Government no longer index future changes in CRA to the Consumer Price Index inflation measure, but instead to changes in rents typically paid by income support recipients.
The poverty rate among age pensioners renting privately is more than three times the national poverty rate.
The Australian Council of Social Service (ACOSS) and the University of New South Wales (UNSW) have estimated poverty rates — measured by the number of all Australians living below the poverty line of 50 per cent of median household income — in 2015-16 was 13.2 per cent, or just over 3 million people. But for people over the age of 65 renting privately, the poverty rate was 43.5 per cent.
At the same time, the proportion of working-age Australians who own their own homes has reduced over the past few decades.
The Grattan Institute estimates that if current home-ownership trends continue, home ownership for over-65s will decline from 76 per cent today to 57 per cent by 2056.
Co-investment model towards home ownership
The other part of KPMG’s proposal is to give people renting a chance to acquire a stake in their own homes, via the adoption of a shared-equity co-investment model.
Under the plan, the Federal Government assigns the pensioner’s CRA payment to a third-party financial institution as an income stream for a period of up to 25 years.
The financial institution provides the individual with a lump sum to invest in a home, in return for assignment of the CRA.
The lump sum is calculated based on future cash flows from the assigned CRA, assuming this would rise over time to keep pace with rental inflation, and would also include a 2-per-cent upfront financing fee.
The paper suggests the bank may hold a form of security over the occupier’s share of the property that could gradually fade out over the term of the arrangement.
“This would provide some insurance against the occupier’s early death and the consequent discontinuation of the income stream,” it said.
“It would mean that the individual would effectively vest in his or her home equity over time.”
At the same time, an investor such as a housing trust or ethical investment fund, would take up the balance of the property that is not funded by the individual’s lump sum.
The individual would pay rent to the housing investor for the portion of the property not covered by the lump sum from the financial institution.
KPMG’s lead tax partner, Grant Wardell-Johnson, said the shared-equity scheme could build upon precedents already established in Western Australia, South Australia and the ACT.
The Government would have to fund the initial set-up of the program, but would not pay out any more money than if it had continued to pay CRA as normal, he said.
He warned there could be problems relating to pensioners in obtaining finance, and the industry and government would also need to work together to ensure there was adequate housing supply for CRA recipients.
Tax measures including possible capital-gains-tax incentives for investors, could also be considered, he added.
Super measures to help lift savings
KPMG also suggests a number of changes to superannuation, including removing the $450-per-month wage threshold for entitlement to employer super contribution.
The paper suggests such a move would not only assist low-income earners in saving more for their retirement, but would also eliminate any temptation for employers to manipulate workers’ hours in a bid to keep their monthly pay below that threshold.
The paper also recommends the Federal Government introduce a mandate that when people take paid parental leave, their boss will be required to pay them super.
“With sufficient lead time it would be something that employers could incorporate into their budgeting processes,” it said.
The paper also suggests making top-up contributions (rather than co-contributions) to the super accounts of low-income primary carers with pre-school-age children and Commonwealth Rent Assistance recipients aged 50 to 59.
“The Government already provides a co-contribution of up to $500 for very-low-income individuals, but such people have limited ability to take maximum advantage of this as they need to find $1,000 of their own money,” Mr Wardell-Johnson said.
“A top-up payment instead, going to the carer, would be sensible, given the huge potential benefits of even a small boost to a mother’s super balance.”
Top-ups to primary carers of school-age children should be modelled by the Parliamentary Budgetary Office, he said.
Commonwealth top-ups of $2,000 for CRA recipients aged 50 to 59 would cost $400 million, KPMG estimates, but Mr Wardell-Johnson said it could ultimately save the public purse through reduced reliance on the age pension.