Means-Tested Age Pensions and Homeownership: Is There a Link?

Cho, Sang-Wook; Sane, Renuka

doi:10.1017/s1365100512000041

Cited by 32 publications

(29 citation statements)

References 22 publications

(21 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…As the family home is not means-tested, this is equivalent to assuming that pensioners bequeath their homes which is a reasonable approximation, as most Australian households do not reduce their housing equity at older ages (Cho & Sane, 2011). Assume for now that the terminal date, T, is fixed and the investor receives no labour income, but is also eligible to receive a means-tested government pension.…”

Section: Modelmentioning

confidence: 99%

Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement*

Hulley¹,

McKibbin²,

Pedersen³

et al. 2013

Economic Record

View full text Add to dashboard Cite

Age Pension means-testing buffers retired households against shocks to wealth and may influence decumulation patterns and portfolio allocations. Simulations from a simple model of optimal consumption and allocation strategies for a means-tested retired household indicate that, relative to benchmark, eligible and neareligible households should optimally decumulate faster, and choose more risky portfolios, especially early in retirement. Empirical modelling of a Household, Income and Labour Dynamics in Australia panel of pensioner households confirms a riskier portfolio allocation by wealthier retired households. Poorer pensioner households decumulate at around 5 per cent p.a. on average; however, better-off households continue to add around 3 per cent p.a. to wealth, even when facing a steeper implicit tax rate on wealth.

show abstract

Section: Modelmentioning

confidence: 99%

Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement*

Hulley¹,

McKibbin²,

Pedersen³

et al. 2013

Economic Record

View full text Add to dashboard Cite

show abstract

“…One recent paper that does in fact address the housing issue, and from an Australian perspective, is a study by Cho and Sane (2013). In that paper, a general equilibrium life-cycle model is developed that considers the economy-wide impact of changing the owneroccupier exemption in the AP assets test.…”

Section: The Life-cycle Model: Existing Researchmentioning

confidence: 99%

“…Such a result is unsurprising, considering the policy essentially removes a large tax concession afforded to owner-occupied housing, effectively reducing its post-tax return. The second policy simulation considered in Cho and Sane (2013) examines the effect of a partial removal of the exemption afforded to owner-occupied housing in the AP assets test: namely a cap on the value of owner-occupied housing which is exempt from the assets test. While such a policy was identified in the Henry Tax Review (Henry, Harmer et al 2009) as one component of a series of recommended reforms to the tax and transfer system, the cap of $120,000 considered in Cho and Sane's paper is significantly less than the cap of $1.2 million mooted in the Henry Tax Review.…”

Section: The Life-cycle Model: Existing Researchmentioning

confidence: 99%

Asset portfolio retirement decisions: the role of the tax and transfer system

Whelan¹,

Atalay²,

Dynan³

2018

AHURI Final Report

View full text Add to dashboard Cite

AHURIAHURI is a national independent research network with an expert not-for-profit research management company, AHURI Limited, at its centre.AHURI's mission is to deliver high quality research that influences policy development and practice change to improve the housing and urban environments of all Australians.Using high quality, independent evidence and through active, managed engagement, AHURI works to inform the policies and practices of governments and the housing and urban development industries, and stimulate debate in the broader Australian community.AHURI undertakes evidence-based policy development on a range of priority policy topics that are of interest to our audience groups, including housing and labour markets, urban growth and renewal, planning and infrastructure development, housing supply and affordability, homelessness, economic productivity, and social cohesion and wellbeing. AcknowledgementsThis material was produced with funding from the Australian Government and state and territory governments. AHURI Limited gratefully acknowledges the financial and other support it has received from these governments, without which this work would not have been possible. AHURI Limited also gratefully acknowledges the contributions, both financial and in-kind, of its university research partners who have helped make the completion of this material possible. DisclaimerThe opinions in this report reflect the views of the authors and do not necessarily reflect those of AHURI Limited, its Board, its funding organisations or Inquiry panel members. No responsibility is accepted by AHURI Limited, its Board or funders for the accuracy or omission of any statement, opinion, advice or information in this publication. Lachlan Dynan's contributions were made during his time as an Honours student at the University of Sydney, and not during his subsequent employment at the Reserve Bank of Australia. As such, the views represented here are unrelated to the Reserve Bank of Australia.This report uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA project was initiated and is funded by the Australian Government Department of Social Services (DSS) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this report, however, are those of the authors and should not be attributed to either DSS or the Melbourne Institute. AHURI journalAHURI Final Report journal series is a refereed series presenting the results of original research to a diverse readership of policy-makers, researchers and practitioners. Peer review statementAn objective assessment of reports published in the AHURI journal series by carefully selected experts in the field ensures that material published is of the highest quality. The AHURI journal series employs a double-blind peer review of the full report, where anonymity is strictly observed between authors and referees. Contents List of tables vii List of figures viiiAc...

show abstract

“…We apply the assumption that the utility is linked to the house value as in Ding (2013) and Cho and Sane (2013). The utility from owning a home is defined as…”

Section: Housing Preferencesmentioning

confidence: 99%

“…In addition to the aforementioned, the most important extensions to traditional utility maximization models from an Australian retirement perspective include housing (Yogo, 2011;Cho and Sane, 2013), bequest (Lockwood, 2014;De Nardi, 2004;Ameriks et al, 2011) and health (Yogo, 2011).…”

Section: Introductionmentioning

confidence: 99%

Optimal Consumption, Investment and Housing with Means-Tested Public Pension in Retirement

2016

View full text Add to dashboard Cite

In this paper, we develop an expected utility model for the retirement behavior in the decumulation phase of Australian retirees with sequential family status subject to consumption, housing, investment, bequest and government provided means-tested Age Pension. We account for mortality risk and risky investment assets, and introduce a health proxy to capture the decreasing level of consumption for older retirees. Then we find optimal housing at retirement, and optimal consumption and optimal risky asset allocation depending on age and wealth. The model is solved numerically as a stochastic control problem, and is calibrated using the maximum likelihood method on empirical data of consumption and housing from the Australian Bureau of Statistics 2009-2010 Survey. The model fits the characteristics of the data well to explain the behavior of Australian retirees. The key findings are the following: first, the optimal policy is highly sensitive to means-tested Age Pension early in retirement but this sensitivity fades with age. Secondly, the allocation to risky assets shows a complex relationship with the means-tested Age Pension that disappears once minimum withdrawal rules are enforced. As a general rule, when wealth decreases the proportion allocated to risky assets increases, due to the Age Pension working as a buffer against investment losses. Finally, couples can be more aggressive with risky allocations due to their longer life expectancy compared with singles.

show abstract

Means-Tested Age Pensions and Homeownership: Is There a Link?

Cited by 32 publications

References 22 publications

Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement*

Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement*

Asset portfolio retirement decisions: the role of the tax and transfer system

Optimal Consumption, Investment and Housing with Means-Tested Public Pension in Retirement

Contact Info

Product

Resources

About