Are reverse mortgages on the family home the answer to funding Australia's growing population of retirees?

At last week's National Reform Summit, both free market and progressive think tanks agreed the value of the family home should be taken into account when assessing whether somebody is eligible for the age pension, and supported the idea of forcing people to fund more of their own retirement by unlocking the $700 billion tied up in family homes.

PwC partner Catherine Nance, who heads the Institute of Actuaries of Australia's housing working group, said the fact the family home was exempted from the pension assets test encouraged people to remain in inappropriate housing.

Centre for Independent Studies economist Simon Cowan said a 20 per cent jump in house prices in recent years meant the total value of pension equity was likely to have reached $700 billion, and could be as high as $750 billion. Cowan said government-based reverse mortgages for retirees could ease pressure on the pension.

"While the pressure on the budget has only increased in recent years, particularly as forecasts of a quick return to trend economic growth look less likely, the store of pensioner home equity has increased rapidly," said Cowan. "As a potential avenue to increase living standards, this cannot continue to be ignored."

The Australian Institute also supports reverse mortgages. "We're suggesting, one, why not advertise that scheme more but, two, extend it to those who are eligible for the pension and then you get around this asset-rich, income-poor problem," said the Australia Institute's executive director Ben Oquist. "It's politically difficult, but so is raising the GST."

Including owner-occupied housing in the calculation of a retiree's eligibility for the age pension would contribute about $7 billion a year to the budget, a 2013 report from the Grattan Institute found. The report said taking the value of the family home into account when assessing pension eligibility would also encourage people to downsize and enable more efficient use of the existing housing stock.