Australia’s retirement funding challenge


Joshua Funder

Australia is facing a major retirement funding challenge. We are living longer than ever, yet it’s becoming increasingly clear that many people don’t have enough superannuation to fund a comfortable retirement.

Australia’s baby boomers are hitting retirement. Over the coming years, 5.5 million people born between 1946 and 1964 will retire; for many of those, compulsory super started too late into their working lives. As they approach retirement, inadequate funding looms as a major socio economic problem that must be addressed.

Yet, until recently, the market had failed to deliver an effective means of releasing this equity to fund retiree needs in a responsible and sustainable way.

Wealth is locked in housing

For most Australians, the majority of their wealth is tied up in their home. Around 80% of retirees own their own home; rising house prices have increased the value of these homes over time to levels that often surpass the value of their superannuation. However, this wealth is locked away and largely inaccessible to fund retirement needs.

In total, there is nearly one trillion dollars in untapped home equity owned by Australian retirees.

Given that most retirees wish to stay in their own home as they age, this untapped savings is a valuable resource that could be utilised to provide improved retirement funding and cover important costs such as age-appropriate in-home care and home renovations to allow retirees to live safely and comfortably at home.

Canada and the UK have a similar demographic composition to Australia; an ageing workforce with a large baby boomer cohort entering retirement. In each of these countries, there has been strong growth in reverse mortgages used to fund long-term retirement income streams.

Failure of traditional reverse mortgages

This has not been the case in Australia where reverse mortgages have failed to meet the long-term needs of retirees for several reasons.

Firstly, reverse mortgages were seen as a form of last resort financing for many older Australians and were often used to fund inappropriate spending for potentially distressed borrowers – a recipe for disaster that created dissatisfaction with the product and its providers.

Importantly, access to home equity in Australia was never directly linked to long-term financial planning or financial advice. This left many borrowers cash poor and asset depleted through the remainder of their lives.

New model needed

Despite this failure, the fact remains that many Australians need to utilise their home equity, albeit in a more responsible and sustainable way, if they are to have a comfortable retirement.

Clearly a new and innovative approach is required to meet this major unmet community need and delivered in the context of financial advice and long-term retirement planning.

For this model to be successful, there should be a focus on transferring home equity to appreciating assets that can meet long-term retirement needs. Lending should be constrained for short term consumption or deployment to depreciating assets.

Responsible uses for home equity include:

  • topping up super
  • renovating the home to make it suitable for aged living
  • paying for in-home care
  • funding a transition to aged care for one partner, allowing the other to remain in the home
  • intergenerational wealth transfers, assuming other needs are met.

Household Capital has published a white paper that analyses the reasons why traditional approaches to access home equity have failed to meet the needs of retirees. It identifies a significant market opportunity for innovative approaches that assist retirees to responsibly tap into flexible and cost-effective home equity, helping them to Live Well At Home.

Read the executive summary.

By Josh Funder, CEO


Household Capital Pty Limited ACN 618 068 214 is the issuer of this information. Household Capital Pty Limited is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434, Australian Credit Licence 391876.

You must be logged in to post or view comments.