The family home should be partially included in the assets test for the age pension to slow growth in the largest item of Commonwealth spending, the Commission of Audit has recommended.
The commission recommended that from 2027-28, that part of the value of a home above a threshold of $750,000 for couples and $500,000 for a single pensioner would be included in the pension assets test.
But the Abbott government has reportedly already dismissed the proposal as too politically difficult.
The age pension is by far the single most expensive Commonwealth spending item, costing about $40 billion a year and projected to grow by more than 6 per cent a year over the next decade.
A person's principal home is not currently considered in the assets test for the payment and four in five retirees eventually get either a full or part age pension.
A report released last year by the Grattan Institute said including owner-occupied housing in the assets test for the age pension would save $7 billion a year.
The commission also recommended the full value of the family home be included in the means test for aged care, and arrangements be introduced to allow older Australians to access equity in their home to help pay for the cost of their care.
The commission wants the pension age to rise to 70 by 2053, and the superannuation preservation age lifted to five years below the pension age, so that it would reach 62 by 2027.
It recommended indexing the pension to a new, lower, benchmark of 28 per cent of average weekly earnings instead of the current benchmark which is based on male earnings.
The Commonwealth Seniors Health Card, which gives older people who are not on the pension access to several payments and concessions including cheaper prescription drugs, would be harder to get under a proposal to include deemed income from tax-free superannuation in the income test for the card.
And the commission said there was ''little rationale'' for the current arrangement in which recipients of Newstart, Widow and Sickness allowances, who are over 60, receive a higher payment than younger recipients, recommending the payment amounts be aligned for all recipients regardless of their age.