Household Capital was formed to improve retirement outcomes for Australian retirees by helping them access home equity. Their mission is to help retirees "Live Well At Home" through retirement. The white paper analyzes why traditional approaches to accessing home equity like reverse mortgages have failed retirees and identifies an opportunity for innovative approaches. Household Capital has developed a new model of home equity lending that integrates access to home equity with retirement planning to allow retirees to responsibly tap into this source of savings over the long term. The model aims to address inadequacies in typical retirement incomes and help retirees meet needs like home renovations through flexible use of home equity.

1. L i v e We l l A t H o m e
February 2019
This white paper has been prepared for partners
and stakeholders of Household Capital.
The role of home equity
in Australian retirement
Executive summary

2. 1
Executive summary
Household Capital was formed to improve the retirement outcomes of Australian retirees. Our mission
is to help Australians Live Well At Home. Industry leaders have come together in support of this
mission. Household Capital draws on deep expertise from many related fields across its board of
directors, advisory board and executive team including: retirement policy experts; economists and
actuaries; finance and banking executives; longevity and healthcare professionals; property and
investment managers; technology and innovation entrepreneurs. This whitepaper sets out the data,
purpose and rationale for our mission.
Introduction
Australians are experiencing a major societal transformation. We are living longer than ever, yet it is
becoming increasingly clear that many people don’t have enough superannuation to fund a comfortable
retirement.
At the same time, the majority of older Australians 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.
With most people preferring to stay in their own home as they age, this untapped savings is a valuable
resource that could be utilised to provide a better income for retired Australians, and to fund important
costs such as age-appropriate in-home care and home renovations to allow retirees to live safely and
comfortably at home.
Yet, as of now, the market has failed to deliver an effective means of releasing this equity to fund retiree
needs in a responsible and sustainable way.
This paper analyses the reasons why traditional approaches to access home equity have failed to meet
the needs of retirees; and 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.
The challenges of retirement
Australians are living longer and want to retire at home
The life expectancy of Australians in retirement has almost doubled in the last 150 years thanks to better
lifestyles and medical breakthroughs. Since the introduction of compulsory superannuation in 1992,
Australians at retirement have gained an extra decade of longevity.
It is estimated that retirees aged 65 today will live on average until 84 for men and 87 for women. Long,
healthy lives enable Australians to spend a greater part of their retirement living independently, and the
majority of retirees wish to stay in their family home during that period. However, many people aren’t
financially prepared to fund 25-30 years of retirement.
The majority of Australian retirees own their own homes at retirement; despite government incentives
to downsize it is not the preferred option for most.
Mission

3. 2
Retirement savings are falling short
Despite high levels of median wealth in Australia, retirees experience high levels of relative poverty.
When compulsory superannuation was introduced in 1992, many baby boomers were more than
halfway through their working life.
As well as forgoing early super contributions, they also missed out on the benefits of compounding
returns over time. As a result the median household superannuation savings at retirement is only
$200,000, estimated to support a ‘comfortable’ retirement income for just 10-15 years. Many Australian
retirees face the remainder of their lives dependent on the inadequate age pension. A shortfall in
superannuation savings means Australian retirees may not only endure inadequate income throughout
retirement, but have no access to funds to meet capital spending or contingencies throughout retirement.
Wealth is tied up in the family home
For most Australians, the majority of their wealth is tied up in their home equity; in total, there is
AU$900b+ in untapped home equity owned by Australian retirees.
Approximately 80% of retirees own their own home; however, this wealth is locked away and largely
inaccessible to fund retirement needs.
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.
Retirement funding gap
A major social and economic opportunity
By helping retirees to better access home equity for retirement funding, Household Capital can address
several important areas of social and economic policy:
1. Providing appropriate housing (including aged care) and funding for retirement.
2. Retirees with greater incomes and increased confidence in their ability to fund retirement will
be more active, healthier and happier.
3. Support policies to promote in-home retirement, such as the Commonwealth Home Support
Program (CHSP).
4. Developing countries with ageing demographics face the challenge of secular stagnation—
inadequate consumption to sustain economic growth.
5. Retirees are a large group with significant inaccessible wealth in home equity and major unmet
needs in consumption for wellbeing. By unlocking home equity to improve retirement funding,
we can enhance both the quality of life in retirement and economic activity.
The market has failed to fund retirement with home equity
It can be challenging to access capital locked up in the family home for the purpose of retirement
funding. There are four main approaches available for retirees to access home equity: downsizing, lines
of credit or offset accounts provided by the banks, home reversion schemes and traditional reverse
mortgages. Each of these approaches has significant downside in terms of cost of access, security of
tenure in the home or the ability to fund long term retirement income.
Traditional reverse mortgages don’t meet the needs of most retirees
The majority of the Australian home equity market comprises standard lump sum mortgages. However,
traditional bank reverse mortgages have generally been unaligned with the long-term housing and
funding needs of Australian retirees, and therefore have failed to provide genuine retirement funding

4. 3
adequacy and certainty. The Australian Securities and Investments Commission (ASIC) review of
reverse mortgages in 2018 identified several reasons why traditional bank reverse mortgage products
have failed to meet the widespread needs of Australian retirees, including:
• Adverse selection – seen as a form of ‘last resort’ financing for many older Australians,
historical access to home equity was often for inappropriate purposes for potentially distressed
borrowers. These circumstances provide a recipe for dissatisfaction with the situation, the
product and the provider.
• Misaligned distribution – while financial advice was often recommended, access to home
equity in Australia was never directly linked to long-term retirement planning or financial
advice; this left many borrowers cash poor and asset depleted throughout the remainder of their
lives.
• Short term consumption of equity – according to the ASIC review of reverse mortgage
lending in 2018, the application process historically focused on the borrower’s short-term
objectives, with limited attention paid to future needs.
• Lack of intergenerational transfers – traditional reverse mortgages failed to provide a
structured mechanism to and enable the responsible transfer of home equity to subsequent
generations at a time they incur major lifetime expenses.
• Reputational risk – for the reasons outlined above, as well as mis-selling and poor historical
legal protections, reverse mortgages have incurred severe negative reputational damage in
Australia. Reputational risk is real and was a major issue cited by banks in withdrawing from
the market.
• Interest Rates – the small and dysfunctional Australian reverse mortgage market, led by a
subset of the major banks, failed to provide competitive, risk-adjusted pricing for access to
home equity:
• Market dynamics – overall the reverse mortgage market in Australia has remained static at
around 35,000 outstanding loans with a $3.5b portfolio for the past decade, before entering a
decline associated with the withdrawal of bank providers.
Opportunity to improve retirement funding
Innovation is required to meet the needs of most retirees
For Australians to fully benefit from 30 years of retirement, innovation in access to home equity is
required across three areas:
i) New ways to finance long-term reverse mortgages
ii) the psychology and experience of retirees relative to their retirement incomes and their homes
iii) integration of home equity with the retirement income system.
Household Capital has redesigned access to home equity
Household Capital has pioneered a new model of home equity lending that helps retirees confidently
access a portion of their home savings, as a holistic and sustainable solution alongside their
superannuation and the aged pension. The model is differentiated from the traditional reverse mortgage
model in three ways:
• Capital management – Household Capital uses an efficient wholesale funding structure that
provides lower interest rates for customers and low loan-to-value ratio (LVR) protections for
investors.
• Customer experience – Household Capital has recognised the major unmet need of baby
boomers to access responsible, purpose-based, long-term funding solutions. Working with
retirees we reframe home equity as part of lifetime savings and support retirees in self-financing

5. 4
retirement to meet specific needs from their own savings. Customer software supports informed
decision making, quality control and efficiencies of scale.
• Partnered distribution – Household Capital integrates home equity solutions with the
Australian financial advice and superannuation sectors, to ensure appropriate financial and legal
advice is provided to guide decisions about the allocation of home equity.
Product opportunity
Responsible retirement funding needs
Household Capital identifies a range of responsible retirement funding needs which may be met with
access to home equity, including:
- super top up
- home improvements for aged living
- in-home care
- intergenerational giving for a first home deposit or education fees
- transition to aged care
Two guiding principles govern this approach. First, long-term retirement funding needs are largely met
by the transfer of home equity to appreciating assets which can flexibly meet those funding needs over
time. Second, credit is constrained for short-term consumption of home equity or deployment to
depreciating assets.
Benefits to retirees
By restructuring responsible access to home equity, retirees can receive multiple benefits:
1. Access to savings – where the majority of lifetime savings are in the home, these are now
available to improve retirement funding.
2. More adequate retirement funding – where the age pension and superannuation are
inadequate, home equity can help provide more acceptable income or capital amounts.
3. More reliable retirement income – for some retirees, income is volatile relative to the
performance of superannuation; home equity can smooth income and capital supply.
4. Asset diversification – as superannuation is depleted, retirees’ assets become increasingly
concentrated in a single residential property; a transfer to superannuation can diversify assets.
5. Long term financial advice – higher super balances during retirement can qualify for long-
term financial advice and the benefits that come from holistic management of household
savings.
6. Sequencing risk management – responsible, long-term access to home equity adds a second,
independent, largely uncorrelated source of income should super assets decline periodically.
7. Imputed rent annuity – non-recourse borrowing provides certainty of occupancy of the home,
increasing the annuity value of long-term imputed rent and enhancing real retirement incomes.
Significant market opportunity
Our analysis of de-identified asset data of almost one million superannuation members from a wide
range of funds found that a large proportion of older members with lower balances could improve
their lifestyle in retirement by using a portion of the savings stored in their home. In the example set
out on the following page, a retired couple are able to more than double the life of their retirement
savings from 13 years to 29 years by transferring home equity into their superannuation fund.

6. 5
▪ Initial home loan of $150,000 at age 65
▪ Proceeds placed in super, while retaining the age pension for a couple
▪ Assuming home value growing at 4.0% pa, super growing at 6.0% pa and interest of 5.9% pa
▪ Without Super Top Up, the couple can expect to draw $20,000 pa indexed at 2.5% pa for 13 years
▪ The addition to super of $150,000 allows the couple to draw $20,000 increasing at 2.5% pa for 29 years.
At the time superannuation is exhausted at 29 years, the home has 60-70% of the equity remaining, enough to draw
additional funds for ongoing living expenses or to use as a bond for entering aged care.
Super Top Up
Transferring home equity to an accessible,
appreciating superannuation portfolio

7. 6
Regulatory environment
Following the introduction of the National Consumer Credit Protection Act (2012), reverse mortgage
lending is now among the most strictly regulated credit products in Australia, with clear consumer
protections and market parameters at both the beginning and end of all loans.
Over the past four years, several regulatory reviews have highlighted the link between access to home
equity and standard of living in retirement, and recognised the legitimate need for Australians to tap
into the wealth locked in their homes.
“Most older Australian home owners on low incomes could achieve a modest
retirement living standard over the remainder of their lives by drawing on their home
equity.”
Source: Productivity Commission 2015.
On the flip side, inquiries such as the ASIC Review of Reverse Mortgages have found significant
shortcomings with traditional reverse mortgage products. ASIC found that the short-term focus resulted
in borrowers facing the risk of being left with insufficient equity in their homes to pay for future
financial needs. ASIC’s conclusions are a resounding endorsement of the need to consider long-term
retirement needs in accessing home equity.
“Older Australians should have fair and equitable access to equity release options
such as reverse mortgages”
Source: ASIC 2018
Recently, the government’s expansion of its Pension Loans Scheme (PLS) to a broader range of retirees
as part of the 2018 federal budget provided high-level recognition of the role home equity can and
should play in the long-term funding of retirement. However, the limits of the PLS mean that additional
and complementary forms of home equity access will be required to meet the widespread needs of
Australian retirees.
Conclusion
Traditionally, Australia’s retirement income policy has been framed as having three pillars:
superannuation, non-superannuation savings and the age pension. However, for many Australian baby
boomers, the three pillars provide inadequate resources to fund longevity.
Now is the time to include a fourth, currently unavailable, pillar of retirement funding: home equity.
By drawing on multiple sources of income, Australian retirees can achieve funding adequacy
throughout 25+ years of retirement. To do this, retirees must be able to responsibly, flexibly and cost-
effectively access home equity savings to provide long-term retirement funding.
Household Capital has fully redesigned home equity lending to cater to the needs of Australian retirees.
We help people confidently access a portion of their home savings, as a holistic and sustainable solution
alongside their superannuation and the aged pension, to help them Live Well At Home in retirement.
Access to home equity must transition from being a marginal and dysfunctional subsector of the banking
industry to being a core component of national retirement funding.
It’s time to rethink the way we fund retirement.

8. 7
Case Studies
Top Up: boost superannuation
“Jo” is about to retire at age 65. She has limited super as a
result of working part time and raising a family.
▪ Jo has a super balance of
$53,000 in a balanced portfolio
▪ She owns her home in
Tamborine, valued at $575,000
▪ Jo transfers $100,000 from her
home through a non-
concessional contribution
▪ Without the benefit of Super
Top Up, she can draw $12k on
top of the pension for 5 years
▪ With the super top up of
$100,000 Jo can draw an
indexed income of $12K on top
of the pension for 15 years
▪ At age 80, after 15 years Jo still
retains home equity of 75%
▪ Jo retains full ownership of her
home and flexibility to meet
future needs such as aged care

9. 8
Top Up: replenish invested savings
“George”, 70, retired some time ago and has an income
strategy that includes the age pension and an investment
account.
▪ George’s balance is now
$107,000 and he owns his
home in Paramatta valued at
$430,000
▪ George is concerned that his
current expenditure will
exhaust his savings in less than
10 years
▪ He is faced with the prospect
of spending less, or accessing
the wealth from his home
through downsizing
▪ An alternative is to transfer
wealth into investments,
similar to super, to extend his
income stream
▪ If George transfers $100,000
into an investment, he can
extend his current ABP
income of $15K indexed to
age 90
▪ At age 90, with modest (3%)
house price growth, George
still has 60% of his equity
remaining

10. 10
Live: retirement renovations
“Judy and Michael” are both 67 years old and live in Keilor,
Vic. They want to stay at home, supporting an active life style,
and bringing together their extended family of children and
grandchildren.
They need to invest in home renovations to make sure the
home is suitable for all phases of their retirement: their home
needs a new roof and both bathrooms need modifications to
allow for Judy’s mobility which has been affected by arthritis.
Using a Household Loan can be preferable to downsizing,
depleting retirement savings, or endeavoring to service a home
loan.
▪ Judy & Michael have a combined super
balance of $330,000
▪ Their home in Keilor, Vic., is valued at
$750,000
▪ The couple would like to stay in their
home for 15+ years
▪ By borrowing $75,000 to renovate their
home, Judith & Michael are able to
make their home appropriate for their
current and future needs
▪ Renovating the home improves the
capital value of the home which
continues to appreciate during
retirement and reduces ongoing
maintenance costs
▪ Investing in home renovations is tax
effective given the capital gains tax fee
status of the primary residence
▪ Using a Household Loan to renovate
their home, the couple retains their
access to the age pension and don’t
deplete their super
▪ Renovating the home also improves the
‘imputed rent’, that is, the value,
wellbeing and quality of life Judy and
Michael receive when they stay at home
▪ Improved value of renovated home
increases residual equity for home
owner
Investing in home improvements
can enhance retirement wellbeing
and lifestyle
“We would like to
renovate now to stay in
our home for longer.”

11. 11
Give: housing the next generation
“Rob and Cathy” are both 65 and have a daughter. They
own their home in Samford, Queensland and would like to
support their daughter as she buys her first home.
▪ Rob and Cathy have $316,000
in super and a home valued at
$953,000
▪ Their daughter, Skye, is 30
and trying finance her first
home
▪ Rob and Cathy face a choice if
they are to help Skye; deplete
their super or use some part of
the home
▪ At age 65, they can access
$190,000 of home equity;
however, they need to consider
the impact on their Age
Pension
▪ Rob and Cathy choose to
transfer $75,000 to Skye,
equal to a 10 percent deposit
on her $750,000 inner city
apartment
▪ Preserving their super leaves
Rob and Cathy more secure;
maintaining greater
contingency funding while still
retaining their Aged Pension
Skye’s new home
• Tenneriffe, Qld
• $750,000
Rob and Cathy’s family
• Samford, Qld
• $950,000
Family position - today
• Rob & Cathy’s Home
$950,000
• Skye’s rent cost (pa)
$30,500
• Interest cost
$0
• Property growth (3%)
$28,500
• Gain/Loss
($2,000)
Family position - option
• Rob & Cathy’s Home
$950,000
• Skye’s home
$750,000
• Interest cost (pa)
$43,500
• Property growth (3%)
$51,000
Gain/Loss
$7,500

12. 12
Care: ageing at home
“Margaret” has always been independent, however now
requires some in-home care services to assist her to Live
Well At Home. Her daughter Susan is helping her find and
fund the right in-home care.
▪ Margaret is 85 years old, has
$178,000 in super and a home
in Victoria Point, Qld valued
at $314,000. She can access
home equity of $125,000
▪ Her in-home care needs could
last for a few years
▪ Given that health can suddenly
change with further ageing,
prudent advance planning is
required, which will give
Margaret control and peace of
mind over the next stage of
life should it involve moving
into fully supported aged care
▪ Household Capital can meet
the current requirements for
Margaret to Live Well At
Home
▪ Moving to fully supported
aged care can often occur with
some urgency
▪ Having been prepared,
Household Capital will be able
to help Margaret pay future
supported aged care needs
Move to Aged Care
• Marabello, Victoria Point
• RAD for single room $389,590, or
• DAP for single room $63.52
Stay at home
• In home care - $25,000 + for 5 years

13. 13
Care: transition to aged care
“Barbara” and “Paul”, both 82, have lived in the family home in
Kew, Vic., since marriage, raising their family and retiring.
Declining health means Paul now needs to move into aged care,
while Barbara wants to continue living in the family home.
“…my clients are an 82 year old couple. The husband needs to move to aged
care and she has less than two years’ income before she needs to sell the
house. ”
▪ Barbara and Paul’s home is valued at $1.95m. At age 82 their available equity is $720,000
▪ Barbara and Paul use a Household Loan to fund the provision of a $450,000 aged care Refundable
Accommodation Deposit (RAD) for Paul’s aged care, leaving $1,500,000 in residual equity in the
home, including $270,000 of available equity
▪ The remaining available home equity can be used to support Barbara’s life choices during and
after Paul’s time in aged care
▪ Finally the RAD will be returned upon Paul’s death and can be used to repay the outstanding loan,
bequeathed or consumed.
Household Loan
used to fund RAD

14. Household Capital
Household Capital is a specialist retirement funding
provider. We have brought together industry experts
from a wide range of fields to help solve Australia’s
retirement funding challenge.
We provide responsible long-term access to home
equity to meet the needs of an ageing population.
This can improve retirement lifestyles by topping
up superannuation, enhancing retirement income
and improving retirement housing. Home equity can
also be used to fund in-home care and support the
transition to aged care. Our approach also enables the
transfer of home equity between generations to fund
first-home buyers’ deposits and educational expenses.
Household Capital has expanded access to home equity
by innovating to improve the customer experience,
build aligned distribution partnerships and establish
new sources of finance.
www.householdcapital.com.au