Selling the Family Home: Impact on Age Pension and Alternatives
For many older Australians, the family home is both a cherished space filled with memories and a significant financial asset. As retirement progresses, it’s common to consider selling the home—whether to downsize, relocate, or free up funds. But what are the implications of doing so, especially when it comes to your Age Pension?
In this article, we’ll break down how selling your home can affect your Centrelink entitlements, explain recent government policies like the Downsizer Contribution Scheme, and explore some smart alternatives to selling outright.
🧮 How Does the Age Pension Treat the Family Home?
The good news is that your principal place of residence is exempt from the Centrelink assets test. That means as long as you live in your home, its value doesn’t count against your Age Pension eligibility.
However, things change once you sell the property.
🏠 What Happens When You Sell Your Home?
When you sell your home, the money from the sale becomes an assessable asset—unless it’s being used to buy or build a new primary residence. This can temporarily affect your Age Pension.
✔️ Temporary Exemption Rule
If you intend to use part of the sale proceeds to purchase or build another home, that amount is exempt from the assets test for up to 12 months (potentially extended to 24 months in special circumstances). However:
The interest you earn on the sale proceeds is still counted under the income test.
Any surplus cash not earmarked for a new home becomes an assessable asset immediately.
This means your Age Pension payments may reduce or stop temporarily depending on how much of the proceeds are accessible and how they’re used.
💡 Example:
Let’s say John and Mary sell their home for $900,000 and plan to buy a smaller unit for $600,000. The $300,000 difference becomes an assessable asset. That additional $300,000 could reduce their Age Pension or make them ineligible, depending on their overall asset situation.
💰 What Is the Downsizer Contribution Scheme?
If you're aged 55 or over, you can contribute up to $300,000 per person ($600,000 per couple) from the proceeds of selling your home into your superannuation, regardless of work status or total super balance.
Benefits include:
No contribution caps (outside usual limits)
Tax-free earnings in pension phase
May reduce assessable assets depending on how the super is invested
Caution: Super held in an account-based pension may still count toward your Age Pension assets test.
🛠️ Alternatives to Selling the Family Home
Selling isn't always the best or only option. Here are some alternatives worth considering:
1. Reverse Mortgage / Home Equity Release
Access the equity in your home without selling. The government offers the Home Equity Access Scheme, allowing regular payments secured against your property—now also available as a lump sum option.
2. Renting Out Part of the Home
If you have a large house, consider renting out a room or granny flat. Be aware this may affect your pension under Centrelink’s income test.
3. Granny Flat Arrangements
Transfer money or assets to a family member in exchange for a lifetime right to live in a separate dwelling (granny flat interest). Must be properly documented to avoid Centrelink “deprivation” rules.
4. Downsizing In Place
Rather than moving, consider modifying your existing home to make it more retirement-friendly. This avoids the sale and retains your Age Pension entitlements.
🧾 Key Takeaways
Selling your home can impact your Age Pension, especially if proceeds exceed what’s needed for a new home.
You may be temporarily protected by Centrelink rules for up to 12 months.
The Downsizer Contribution allows tax-effective super contributions from the sale.
Alternatives like home equity access, renting a room, or granny flat arrangements may suit your situation better.
🧭 Final Thoughts
Before making a decision to sell your home, it's wise to consult with a financial adviser or Centrelink Financial Information Service (FIS) officer. Everyone’s situation is different, and a tailored plan can help you maximise your Age Pension, preserve your wealth, and maintain quality of life in retirement.