Originally introduced in the mid-1980s as the ‘Pension Loans Scheme’, the scheme has seen significant reforms announced in the 2018-19 and 2021-22 Federal Budgets, reflecting the government's increased interest in the scheme. [...] The HEAS loan also includes a ‘no negative equity guarantee’ (NNEG), ensuring borrowers will never owe more than the property’s value, and the government instead bears any losses if the loan value exceeds the property value at the end of the loan. [...] The size of government subsidies varies and depends on means-testing, the quality of the facility and the proportion of other residents in the facility receiving government subsidies. [...] In our simulation, we assume that the lower deeming rate (for assets below the threshold) is set at the lower of the cash rate set by the Reserve Bank of Australia and zero for each period of the simulation to proxy returns in a bank account, while the higher deeming rate (for assets above threshold) is set at the lower deeming rate plus 2% to reflect the ability of wealthier individuals to invest. [...] A higher HEAS interest rate tends to shorten the duration for which a household can receive HEAS payments before reaching the maximum outstanding balance cap and reduces the amount of remaining housing equity at the end of the loan.
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- Pages
- 33
- Published in
- Australia
Table of Contents
- 1 Introduction 3
- 2 Background 5
- The Australian Retirement Income System 5
- The HEAS 7
- 3 Methodology 9
- 3.1 Preferences 9
- Non-Housing Consumption 10
- Housing Consumption 10
- Bequest Motives 11
- Expected Utility 12
- Parameterisation 13
- 3.2 Representative Households 13
- 3.3 Simulations 18
- 4 Results 18
- 4.1. Main Results 19
- 4.2 Policy Experiment: Higher HEAS Payments 22
- 4.3. Sensitivity Analysis 26
- Higher HEAS Interest Rate 26
- Stronger Bequest Motive 28
- Zero House Price Growth 29
- 5 Conclusion 31
- References 32
