The problem with the Pension Loans Scheme

Housing expert Mark Skelsey explains the pitfalls of the Pension Loans Scheme.

The problem with the Pension Loans Scheme

At first glance, it seems like a good idea – supercharge an existing Australian Government scheme to make it easier for retirees to turn the equity in their home into regular cash payments.

The expanded Pension Loans Scheme, which came into effect on 1 July, allows retirees to access a fortnightly amount representing 150 per cent of the maximum Age Pension payment, via a government loan secured against their home.

A 5.25 per cent interest rate will apply to the loan, which will need to be paid back to the Government when the home is sold.

The Government expanded the scheme by making it available to self-funded retirees as well as pension recipients and increasing the amount that could be borrowed from 100 per cent to 150 per cent of the maximum fortnightly pension rate.

The scheme does look particularly attractive in a low interest rate environment, where retirees are struggling to create a strong and safe income stream from their savings.

However, retirees will need to think carefully before they sign up to the scheme, as it does have a number of potential pitfalls.

Doesn’t promote ‘fit for purpose’ housing for seniors.
Many pensioners are living in older-style homes, which were designed for active and young families. These homes are less suitable for elderly people, often because they contain stairs, trip hazards and don’t cater for people with reduced mobility.

This government scheme will encourage pensioners to stay in these unsuitable homes, when it is perhaps preferable to be providing incentives for them to move to newer, safer and more comfortable housing stock.

For instance, many newer homes are built to Liveable Housing Australia standards, which include requirements for level pathways to the front door, easy-access shower cubicles, slip-resistant flooring and electrical power points elevated from the skirting board.

This scheme won’t help with housing affordability.
Across Australia, there are estimated to be millions of empty bedrooms, largely due to ‘empty nesters’ living in homes well after the children have left home. These bedrooms are going to waste when they could be providing housing for those who need it.

A survey by Downsizing.com.au and LJ Hooker in 2017 revealed the extent of the problem.

Just under 90 per cent of survey respondents said they had a spare bedroom available in their home which no one regularly occupied. Incredibly, one in five respondents said they had three spare bedrooms and four out of 10 said they had two spare bedrooms.

Encouraging pensioners to stay in their home will continue and exacerbate this national empty bedrooms problem, by locking up older, larger homes that could be better occupied by younger and growing families.

It could lead to loneliness.
Like many other developed countries, Australia has an acute loneliness problem. A major study released last year found one in two (50.5 per cent) Australians feel lonely for at least one day in a week, while more than one in four (27.6 per cent) feel lonely for three or more days. The UK Government has launched its own Loneliness Strategy, arguing that it is one of the greatest public health challenges of our time.

As mentioned above, there are millions of empty bedrooms in homes occupied by elderly people across Australia.

These bedrooms are empty for a very good reason – the family (and sometimes also a partner) are no longer living there. This can be a very lonely experience and also not a safe one during times of ill-health.

Retirees may be better moving into retirement communities, where they can be part of a vibrant and supportive community, rather than utilising the Pension Loans Scheme and staying alone in their homes.

Scheme doesn’t help people with large mortgages.
This scheme may not help the increasing numbers of seniors who are arriving into retirement with a large mortgage and are struggling with repayments.

The Housing Decisions of Older Australians report by the Productivity Commission, shows that around 30 per cent of Australians aged over 55 in 2011 had an outstanding mortgage on their home, compared to around 15 per cent in 2001.

Recent economic data has shown this problem has worsened since 2011.

Although it is possible to utilise the PLS when there is an existing mortgage on the property, this may not be the best solution.

This is particularly the case if the ongoing mortgage payments eat up the increased income that will come from the scheme.

The best way to deal with this problem may be to sell the property to allow the mortgage to be removed, or to find other ways to get rid of the mortgage debt.

Using the scheme for a long period could cut into your home value.
The PLS is based on a 5.25 per cent interest rate that compounds fortnightly on the outstanding loan balance.

As the Government’s website explains, this means that if you use the loan to get a fortnightly payment of $750, after 15 years you will have a total loan balance of $445,000 (of which some $152,000 represents interest).

That sort of amount is likely to represent a pretty big whack on any inheritance which goes to the children.

As AMP technical strategy manager John Perri explains: “When the family home is sold, the amount owed will be deducted from the sale price of the home.

“For retirees, the Pensioners Loan Scheme provides an opportunity to free up some equity that they have in their home. This may help bridge the funding gap while looking to secure aged care or while they await an ACAT assessment.

“The downside is that their estate often will be left to pay the outstanding loan, potentially leaving less inheritance to the kids. Retirees should carefully consider their personal situation to work out if this is a viable option for them.”

Conclusion
There is no question that government intervention is required to help support ‘asset-rich cash-poor’ retirees to fund living expenses in later years.

The Government’s reverse mortgage scheme may offer a helpful temporary solution for some people. This could be after a sudden financial change, ill-health, the death of a partner or while pensioners are transitioning into alternative accommodation.

But in the longer term, it may not be the best solution.

In fact, it could encourage people to stay in large unsuitable homes and be increasingly housebound, lonely and socially isolated, while at the same time being in a scheme that may eat into the inheritance they want to give their children or doesn’t help them remove an unwanted mortgage.

The early evidence is that seniors are not convinced about the scheme. A recent survey by YourLifeChoices found that 87 per cent of seniors would not borrow through the PLS, compared to 13 per cent who would.

To this end, it would be helpful if the Federal and State Governments offered incentives for retirees to unlock equity by selling the family home and downsizing into a more suitable property. This would help retirees to access funds from their property and, at the same time, enjoy the many benefits of downsizing.

These incentives could include changes to the pensions asset test, increasing housing supply for retirees and stamp duty reductions or waivers.

Would you access the Pension Loans Scheme? What do you think are the major problems with this scheme? How could it be fixed?

Mark Skelsey is the news editor of leading retirement and downsizing property search portal Downsizing.com.au. He was a senior journalist at Sydney's Daily Telegraph and has worked as a media and communications consultant and executive in government and the private sector. 

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    Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

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    Chris B T
    5th Aug 2019
    9:45am
    In Transylvania There's a Myth about Vampires.
    Australia Has For Real It's Own Blood Sucking Bunch Of "A"Holes in Government.
    Why so high Interest Rate, at 3% compounding There Making A "Killing".
    Guarantee Return That It Is Structured, pity they don't use the same Extraction of Taxes of The Company's By Setting a Minimum Tax RATE NOT A MAXIMUM.
    Hopeless Situation To Find Yourself In.
    Try all other Options First.
    So SAD.
    {;-(@)
    thommo
    5th Aug 2019
    10:34am
    This scheme is flogged by snake oil salesman like Morrison..Don't fall for it because you will end up eating your house.
    The fact that this scheme exists just proves that the OAP is totally inadequate..
    thommo
    5th Aug 2019
    11:38am
    the word "scheme" is the wrong word...it is a SCAM....
    TREBOR
    5th Aug 2019
    11:43am
    Cannot, for the life of me, see how that man got into politics, let alone to its top spot....
    Farside
    5th Aug 2019
    1:56pm
    Trebor, check out his career history ... he has form with floating into the top jobs. He freely admits to having a friend in the highest of places.
    GeorgeM
    5th Aug 2019
    8:05pm
    Quite right, thommo. However, this article is promoting a scheme by another snake oil salesman called Skelsey promoting his alternative scheme to promote downsizing essentially to help that business which he runs. Talk about a conflict of interest - should have been highlighted more clearly.
    patti
    5th Aug 2019
    11:15am
    Would not have been the best solution for me. I needed to free up a large amount for some urgent and expensive home repairs, so this scheme would not have helped me. I took out a Reverse Mortgage which allowed me to do the repairs, and have some left over for emergencies. I plan to sell my house and move to retirement living next year, which I will be able to afford even after paying back what I owe. I would not suggest this as a long term strategy, but it helped me out of a difficult situation.
    Rae
    5th Aug 2019
    12:20pm
    Good thinking patti. Avoiding those in for the financial kill is a bonus.
    Blinky
    5th Aug 2019
    11:17am
    Skelsey. Leave pensioners alone. Australia is -thank God- not a communist country where the government tells people who have 2 or more spare bedrooms to give them to the bolcheviques, while the polticians enjoy their large mansions.
    Australia is a democracy and I decide what sort of a house I live in and what to do with it in my old age.
    The simplest solution is to increase the base rate and the asset test, which is way too low. It would slso help to inctease the income test, as an incentive x retirees to work, if they want to and are able to.
    There are too many so- called experts talking about the pension and ALL OF THEM agree on one thing: take something away from pensioners.
    I bet that all of them are well-to-do, or a politician and - hence- none of them is looking forward to living on the government pension when they retire.
    Why not have a task force made up of people who live on the govt pension and a credible, unbiased, down-to-earth politician and discuss the best way to improve the pension system in this country?
    TREBOR
    5th Aug 2019
    11:45am
    von Frydenburg is planning a summit on social security - I plan to be there, either physically or in words...

    (he may come from refugee family, but has ascended to the level of 'lord' hence the von)...
    Sceptic
    5th Aug 2019
    3:10pm
    Trebor, as the Frydenburg family was made stateless by Hungary, members of his family were murdered by the Nazis in Auschwitz, and Von is a German prefix, It is hardly appropriate or smart to comment as you have.
    TREBOR
    5th Aug 2019
    8:11pm
    Jawohl, mein Fuhrer...
    tams
    5th Aug 2019
    11:27am
    Firstly if YourLife Choices wants somebody to comment on a Credit product, please use somebody who is licensed with ASIC to do so.

    If somebody downsizes, the surplus ponies are counted towards age pension eligibility, whether the monies are placed into investments or superannuation.

    Let's take the following example of a couple in a large house, valued at $2.0m, $300k in superannuation and about to retire. At the moment they would qualify for the full age pension.
    If they "downsize" as suggested to a $1.4m apartment, the surplus funds of $600,000 will mean they would lose ALL of THEIR AGE PENSION of $36,000 per year.

    We all know that free standing property grows faster than an apartment.
    A $2.0m house increasing at 5% per annum would be worth $4.157m in 15 years time.
    A $1.4m apartment increasing at 3% per annum would be worth $2.181m in 15 years time.

    Even with a loan balance of $445,000 I ask which option is better financially.

    What the writer has also failed to note is the loss of established infrastructure, social contact and services provision for older persons.

    Surely www.downsizing.com.au would be better off commenting in respect of both options, not purely self interest.
    Farside
    5th Aug 2019
    2:06pm
    no matter the decision taken by the hypothetical couple, they have no basis to complain about how hard life is on the pension when they have the means to supplement their pension receipts.
    GeorgeM
    5th Aug 2019
    8:17pm
    Good comments, tams. The self-interest of Kelsey should have been made more clear up-front, as he is NOT an independent analyst, purely driven by his self-interest.

    Actually, if they had Universal Age Pension with NO tests (other than Age and Residency period), this would be up to every person to decide for themselves whether they want to downsize, get a PLS loan, or do nothing. Just like for politicians who have NO such tests for Assets, Income, including Couple Combined tests.

    Just this week we heard of that useless ex-poltician who never delivered anything, Julie Bishop, getting her 2nd plum job after retirement from politics which is over and above the massive and disgusting pension (definitely over $200K) which she will get as a retired politician with NO tests!
    johnp
    5th Aug 2019
    11:35am
    Agree with most comments here. And of course all of this contributes to keeping snake oil salesmen like Morrison in the life style they are used to such as recent raising of extreme obscene exorbitant salaries, perks etc etc. Feel quite nauseous about it all actually !!
    GeorgeM
    5th Aug 2019
    8:19pm
    You may be aware of it, if not you may get more nausea if you read my comment just above about Julie Bishop!
    johnp
    6th Aug 2019
    3:18pm
    Yep; agree with you GeorgeM. The exorbitant salaries, perks, travel and meal allowances etc etc which pollies get has given me more nausea, starting now to vomit !! Also means they dont really have to dip into or touch their salaries. Of course it is cos than can with no oversight !! The extreme opposite end of the spectrum would be the woman victim that spoke on QandA last night !!
    Charlie
    5th Aug 2019
    11:42am
    If I had a home with empty bedrooms I would say, they are mine and I will do what I like with them, rather than be accused by the government and real estate agents of contributing to homelessness.
    Rae
    5th Aug 2019
    12:24pm
    The Government and real estate industry caused the housing problems by over population without building suitable infrastructure and housing. It's a bit late to start blaming the natives.
    TREBOR
    5th Aug 2019
    11:42am
    I've already panned reverse mortgage loans, and find it unconscionable that a government should join the chorus of vultures looming over any family home that is the reality of reverse mortgage.

    Like my good self and the Chinese (they say), governments also tend to play the long game, and like a game of chess, have their moves laid out and carefully planned in (now) smoke-free back rooms swimming in the heady wine of their own hubris (Hubris Vineyards Inc). Thus I would be wary of such things as part of a process of slowly boiling the frogs to accept that the family home is, after all, an asset and should be included in assets test - to the extreme detriment of the 'lower class' home owner retiree on pension - and, more sinisterly, to the opening up of 'amazing opportunities' for the serial house hoarder to grab and hold more and more properties - again to the detriment of those already in the market and to those seeking to get into the market.

    Another example of 'the business model', in this case home ownership opportunity, being side-tracked in the interests of the 'business' type - among whom, as regards serial house hoarding, politicians rank in large numbers - i.e. conflict of interest.

    Furthermore (I do go on), the divide between the 'have' classes and the 'have-not' classes (in our LMAO class-less society) will grow and grow, given that the 'haves will have the opportunity to pass on to their future generations riches, while the 'have-nots' will have no such right.

    Back to the feudal days of lords and peasants - like at the end of the nineteenth century here in Australia... (read your history books for similarities) - part-time itinerant workers, lords of all they survey (kings in grass castles - the lairds on the land), the very rich - the extreme poor, the utter lack of social security, the dire plight of women and families often left alone for months or forever due to the pater familias having to wander in search of work for money, and sometimes not returning due to death on the job or just sheer despair or, more sinisterly, blatant abuse of legal rights etc by the forces of law designed (and to this day) to keep the peasants under control....

    Wouldn't touch this with a barge pole. Mind you, like any good concentration camp guard, the government is only doing its job by its lights.....
    Tricky
    5th Aug 2019
    11:44am
    If I sell my house and down size, this would be a good idea however any cash left over would be put into cash fixed term deposits, albeit the interest rates are around 2%. What would kill my pension is the unfair 'Deeming Rates'. So is the Federal Government helping pensioners to down size? The simple answer is NO.
    TREBOR
    5th Aug 2019
    11:50am
    There intention is to 'free up' your home for the market - not to ensure your healthy retirement funding...

    That homing (as opposed to housing) has declined is a clear indication of the failure of governments respective in this nation to actually look after their own - those who elect and pay them... and pay them very well.

    Time to bring these 'national leaders' into line with those they claim to lead.... I won't offer any homilies on leadership...... been there a few times already...
    McDaddy
    5th Aug 2019
    4:51pm
    Downsizing legislation introduced last year means you can put up to $300k each into Superannuation and beat the deeming rates.
    Captain
    6th Aug 2019
    7:51pm
    McDaddy, and lose all or part of your pension.
    almost a grey hair
    5th Aug 2019
    12:17pm
    If it has been deemed that pensioners need funds up to 150% of the aged pension, then maybe, just maybe the aged pension is a tad too low ????
    Farside
    5th Aug 2019
    2:10pm
    it's a stretch to describe the 150% as a deemed need, perhaps a concessional limit is more apt. There is no issue with the aged pension amount relative to other social security payments.
    GD
    5th Aug 2019
    12:19pm
    Why are they promoting empty bedrooms. They want the older people to house illegals... is that it?.. No way, my bedrooms may be empty but they are being used, by me.
    Eddy
    6th Aug 2019
    1:42am
    I only have a two bedroom home (plus a sewing/hobby/craftroom/art studio which can double as a spare bedroom room). The second bedroom is for my family to stay in when they are here (and a metaphorical "doghouse" for me if needed). No room for any extras. No need for PLS and no intention to downsize. The only winners from downsizing are government coffers and legal/conveyancing fees. I have no involvement with the assets test as I do not get the OAP.
    Farside
    6th Aug 2019
    6:31am
    Eddy, the objective is to right size to your current life circumstances rather than holding onto a large family home that no longer best matches your needs. My take on your home is you have already done so and I think most observers would concur further downsizing unnecessary.

    I don't get why the PLS is getting folks hot and bothered under the collar. Yes the interest rate would be better if pegged to the deeming rate but it's not. It is just one option to access the capital in your home at some future time without having to sell up; don't need a PLS or don't like its financial terms or fine print then don't do it ... simple.
    Lookfar
    5th Aug 2019
    12:34pm
    The only real problem with the pensioner loan scheme (PLS) is that the Interest is Compounded, - Compounding is the way the rich have to steal from ordinary folk who may want to start a business, or buy a whatever, - you think you are paying a certain amount of interest but because the interest is compounded, it effectively increases the interest every compounding period*period, - these days often fortnightly, so a payment of 10% for your credit card actually works out to be 25% annually, - no other word but Usury, describes this practice, https://en.wikipedia.org/wiki/Usury, - you will note that if you put your money in the bank you are paid Interest, not Usury, if you buy and sell shares you do not get Usury, if you buy and sell property or whatever, you do not get usury, - but if you Borrow money from the bank, - Ho, Ho, They get your interest Compounded, - They get Usury money from you, and there is no economic or moral reason that they should but that they have you in a corner, so Can.
    In regard to the PLS, it is particularly pernicious , because older folk are living longer and as the years pass the compounding interest gets bigger and bigger, not only severely reducing your children's inheritance big time, but threatening to take all your pension, sell your house from under you, etc, - it is just so bad and entirely in-approriate.
    Without Compounding interest, the PLS, could be a cost free (for the Govt) help to somewhat assuage the lousy pensions paid, but with Compounding Interest it is a bloody rip-off and there is no justification for that at all.
    Farside
    5th Aug 2019
    2:23pm
    kudos for 'usury'. Can you explain your claim that fortnightly compounding of 10% translates to 25% annual and provide an example.
    KB
    5th Aug 2019
    12:39pm
    Adult children do leave home if you have a family. Maybe if that is the case then retirees could rent out those rooms if they wanted to without being penalized. That way people are helping with t the home would be of benefit to elderly people living on their own .In return assistance could also be exchanged, Pension loans are not a good idea. They are a trap.
    KB
    5th Aug 2019
    12:39pm
    Adult children do leave home if you have a family. Maybe if that is the case then retirees could rent out those rooms if they wanted to without being penalized. That way people are helping with t the home would be of benefit to elderly people living on their own .In return assistance could also be exchanged, Pension loans are not a good idea. They are a trap.
    johnp
    5th Aug 2019
    12:52pm
    Any suggestions re the opposite which is Up-Sizing ??
    Where say a couple in an average sort of house, valued maybe $400K and no age pension. With about $900K in assessable asset such as super. Sell the $400K home, put that together with say $500K out of super and buy $900K home. Now eligible for full aged pension ??
    TREBOR
    5th Aug 2019
    1:28pm
    Downsized (twice now) but up-priced - acreage to big town block with gardens - then to small town block with small gardens (when I get them in and finished (love my tomatoes) - where does that fit in?

    Do I get mortgage assistance?

    You are right - people can fiddle their assets and incomes to suit... shows the need to just abolish the current system that benefits those with more. They're never satisfied with enough...

    Had an offer to be included in a will t'other day - said I'm happy with what I've got after a lifetime of struggle.
    GeorgeM
    5th Aug 2019
    8:26pm
    johnp, given the punishing Assets test that is a better and more logical option......each to their own with the nasty anti-retiree Govts run by Liberal and Labor.
    Joy
    5th Aug 2019
    2:24pm
    What a good idea, you work and pay your home off so you can do it all again I retirement. You can bet if you are on a pension and
    Do one of these loans your pension will be adjusted accordingly, why would anyone bother.
    sunnyOz
    5th Aug 2019
    9:16pm
    Joy - I don't think you understand the way the Pension Loan Scheme works. Yes - your pension will "be adjusted accordingly" - but effectively UP, not DOWN. What you can draw from the Loan Scheme is added to your pension.

    For example - a single person who meets the criteria and is receiving the full pension plus supplements of about $24,000 a year will be able to draw another $12,000 from their home equity – taking their total annual cashflow to about $36,000 a year.

    While the funds from the government cannot be taken as a lump sum, it’s a viable alternative for retirees who are asset-rich but cash poor.

    Those who meet the criteria can apply to receive an income stream of up to 150 cent of the full rate Age Pension.
    Elizzy
    5th Aug 2019
    3:32pm
    I'm surprised this government hasn't planned some version of the UK bedroom tax for Aus age pensioners. We'd better watch out...

    5th Aug 2019
    3:52pm
    The comments are interesting but, I fear, have missed the point. Most have taken the view that it's time to attack the government and individuals within the government without addressing the subject of Pension Loans Scheme. I believe that those who wish to use this scheme are finding it difficult to live off their income which is all pension or pension plus investments and would use this as a top-up for living expenses.

    If a pensioner wants to use a reverse mortgage it would be for a lump sum to do something worthwhile like renovations, repairs, update the family car, medical expenses or a well earned holiday. Either way, regardless of interest rates, the interest is compounded. At this stage we won't be using either system but we don't know what is down the track. I think that those who criticise the scheme haven't given enough thought to those who are in need and cannot obtain funds commercially because they cannot afford repayments. It's also a fact that lending institutions won't lend to pensioners because if there is a default the publicity in chasing a pensioner through the courts is not well regarded.
    Alexii
    5th Aug 2019
    5:25pm
    iIsn't this the key to it? "As the Government’s website explains, this means that if you use the loan to get a fortnightly payment of $750, after 15 years you will have a total loan balance of $445,000 (of which some $152,000 represents interest).
    That sort of amount is likely to represent a pretty big whack on any inheritance which goes to the children."

    In effect the government would just love to see we oldies reduce the value of our assets that we can leave to our kids. That way, our kids will not be able to benefit with a nice little lump sum to help pay off their mortgages and perhaps rise a little up the socio-economic scale.
    Farside
    5th Aug 2019
    6:37pm
    How does the government benefit from encumbrancing your house to deny children of the full blown inheritance? To be fair, though you have reduced the value of the asset by $152,000, the children will enjoy 100% of the capital gain over 15 years and the parents have received the $750 per fortnight top up to enhance their budget. One alternative is for the kids to kick the tin and advance money to the olds and repay from the estate after the olds depart the waiting room. There's a lot not to like about the process and it will not appeal to everyone however the principle is sound.
    Sinkers
    5th Aug 2019
    5:46pm
    The interest rate is too high for the loan scheme.It should be pegged with the deeming rate at 3%
    sunnyOz
    5th Aug 2019
    9:06pm
    Nothing makes me more annoyed than reading -
    “The downside is that their estate often will be left to pay the outstanding loan, potentially leaving less inheritance to the kids"
    For heavens sake - we (seniors) are NOT here to live, struggle, survive, scrimp and live on bread and water, just so we can leave something for 'the kids'.
    It's your money - you use it. The kids have no right to expect anything.
    miker
    5th Aug 2019
    9:45pm
    There are far too many 'Advisors' hovering around the retirees with their 'Expert' advice which usually involves large fees. Why would any sane aged person want to live in cash sucking environment called a 'Retirement Village'. Ive got 2 spare bedrooms and wont be selling
    Farside
    7th Aug 2019
    12:08pm
    so by your criteria those retirees living in a retirement village are insane?
    BillF2
    6th Aug 2019
    12:19pm
    An 'objective' report written by someone with a vested interest in downsizing. Someone who is not, nor ever likely to be in the same situation as most pensioners. As Thommo says, another 'snake oil salesman'. It doesn't seem to get through to these scheme promoters that many pensioners, even if they have big old houses, don't want to move because their life is where they are, not in some dog-box retirement village in Woop-Woop. Even though some pensioners may get an initial benefit from the PLS, at rates higher than bank mortgage rates, the government is out to make money from pensioners, not help them. A genuinely concerned government would offer grants to upgrade older properties and seriously look at ways of using them more effectively. But then again, this is Australia.
    Lookfar
    6th Aug 2019
    7:30pm
    I think the fair thing, is that the greater the value of the Asset, the higher the interest, - the filthy rich will no doubt contest, as they are incapable of sharing, but it would be much fairer over all, - after all, fairer is what we are really on about at this level.
    Very few filthy rich actually earned their money, so maybe how they got to be filthy rich should be part of their application form?

    Might have some other benefits also..
    Dragrush
    7th Aug 2019
    12:22am
    I have taken out a PLS and am finding it works well for me. Also interesting to note that there are no others in this column making comments here that have a PLS and are speaking from first hand know;ledge .. The usual blowhards are making their usual unqualified comments and probably should shut up unless they know all the facts.
    The PLS is not workable for all and it is clear that there are many changes or improvements to be made. The private reverse mortgage schemes are bigger ripoffs and should be revised. How about a few others making comments based on their experiences. I personally found Centrelink very good in dealing with this scheme and cannot fault them . Dragrush
    Farside
    7th Aug 2019
    6:12pm
    well said. The PLS will work well for some such as yourself and not be a product for others; nobody is forcing anyone to take one out. Depending how the fates come together I can imagine circumstances where there is an equity release product like this in my future.
    Crusty
    7th Aug 2019
    6:42pm
    Refreshing to see a positive comment from Dragrush who actually speaks from experience. It is horses for courses, as with everything, but I think it is a very good scheme for high asset, debt free, mortgage free pensioners who need a little extra fortnightly cash. There has been no mention so far (to my knowledge) that the scheme can be varied or stopped at any time, debt paid back and just left there if required later. What cannot be stopped is the big amount of compounding interest that accrues when a normal reverse mortgage on a lump sum (usually at a much higher rate that the Government is charging for it's PLS) is incurred.
    Used prudently and with an appreciating asset as security, the children will not miss out on too much of the inheritance !
    Crusty
    7th Aug 2019
    6:43pm
    Refreshing to see a positive comment from Dragrush who actually speaks from experience. It is horses for courses, as with everything, but I think it is a very good scheme for high asset, debt free, mortgage free pensioners who need a little extra fortnightly cash. There has been no mention so far (to my knowledge) that the scheme can be varied or stopped at any time, debt paid back and just left there if required later. What cannot be stopped is the big amount of compounding interest that accrues when a normal reverse mortgage on a lump sum (usually at a much higher rate that the Government is charging for it's PLS) is incurred.
    Used prudently and with an appreciating asset as security, the children will not miss out on too much of the inheritance !
    tams
    8th Aug 2019
    12:30pm
    As a leading Victorian adviser on seniors equity release, I would like to put forward some focused comments on the article.

    1) All the negative comments come from respondents who don't need equity release. Therefore let's just focus on those who are interested and do have a financial need greater than their current circumstances.

    2) There are multiple methods to access equity
    - PLS
    - Traditional reverse mortgage
    - Home Reversion Scheme
    - Shared equity appreciation

    3) Home Reversion Schemes are the dearest form of equity release and are not regulated by ASIC. If the amount to be repaid was considered as a loan, the implied interest rates would be 9.0 to 10.5%.

    4) Shared Appreciation Scheme - where a home owner sells a portion of their home to one or more unit holders in return for fees and shared growth. New and not likely to be understood.

    5) PLS is available to all retirees over the age of 65.5 years - even self funded retirees. Early applications have been received from borrowers wanting an income stream to assist servicing existing debt - a circumstance the Department did not consider in its introduction.
    As an income stream only, it does not suit the majority of borrowers who have a lump sum need.
    PLS provides none of the regulatory consumer protections of reverse mortgages.

    5) The better designed Reverse Mortgages have a multiple option built into the product - a lump sum, an income stream, and a Line of Credit. There can be lump sum only reverse mortgages but they lose their advantage of accessing what you want when you need it.
    Reverse Mortgages are regulated by ASIC and provide more consumer protections than any other home loan.

    Hoping this information may it clearer for those who may be interested.
    Farside
    9th Aug 2019
    7:16am
    good informed comment. I think many respondents who don't need equity release find it hard to imagine the circumstances of those that welcome the opportunity to keep their home and bring in extra cash at the same time.


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