The Albanese Government on Wednesday introduced laws for the policy change to parliament, proposing to extend the assets test exemption for pensioners to 24 months for principal home sale proceeds.

The additional 12 months will give retirees more time to purchase, build or renovate a new home before the pension is impacted.

More than 8000 retirees moved into a smaller home in 2021, with the government hoping this figure will rise if the bill becomes law.

The law change, set to come into effect from January 1 2023, would benefit the thousands of pensioners opting to sell their houses, Social Services Minister Amanda Rishworth said.

“This encourages more older Australians to downsize their homes, reducing the impact of downsizing on older Australians’ access to the pension,” she told parliament.

“At the same time, (it improves) access and affordability, enabling growing families more opportunities to find suitable housing options.”

Changes include slashing the deeming rate for the money from sales to be used for a new residence from 2.25 per cent to 0.25 per cent a year.

Pensioners intending to use the proceeds from selling their home to purchase or build another are currently only exempt from the social security assets test for up to 12 months.

But a one-year extension is available for unforeseen circumstances, including a natural disaster.

During the exemption period only the lower deeming rate (0.25 per cent) will apply to these sale proceeds in the income test.

The government previously committed to freezing deeming rates at current levels for two years, to June 30, 2024.

“This measure is yet another building block to what we’re putting in place to help ordinary Australians manage in challenging economic times,” Rishworth said.

“This will ensure that there we are removing the barriers that could negatively affect pensioners when they downsize their home.”