Fears Pension Loan Scheme funds may affect pension

Health Department clears up confusion on how funds are assessed.

Fears Pension Loan Scheme funds may affect pension

The Pension Loans Scheme (PLS) revamp announced in the May Federal Budget has been subject to widespread misreporting, according to Aged Care Steps director Louise Biti.

The scheme, which allows users to borrow against the equity in their homes, means funds will now be available from 1 July 2019 to all eligible people of Age Pension age. The amount that can be borrowed will also increase, although PLS holders will not be able to owe the Government more than their home is worth.

Initial praise for the scheme was tempered by reports that amounts borrowed would count as assessable income – in contrast to commercial equity release schemes. But Ms Biti says those reports are wrong.

“Our analysis was that this was an incorrect assessment and was not supported by provisions within the Social Security Act or the Aged Care Act,” she said.

“The issue was raised with both the Department of Human Services (DHS) and the Department of Health for clarification.

“The good news is that the Department of Health has verified that amounts borrowed under the PLS will not count as assessable income for determining either Age Pension entitlements or aged care fees. This means both the PLS and commercial equity release products will be assessed under the same income test rules.”

Successful applicants will be able to borrow against the equity in their home up to 50 per cent of the maximum rate of the full Age Pension per year – an amount of $11,799 for single pensioners and $17,787 for couple pensioners. Loan repayments are set at an interest rate of 5.25 per cent per annum – unchanged since 1997.

Ms Biti said the interest rate was lower than commercial market rates and also lower than the interest used to turn the refundable accommodation deposit (RAD) for residential aged care into a daily accommodation payment (DAP).

If passed, the PLS can be used by older Australians who are asset-rich as a result of rising property prices to stay in their home and use the funds generated to finance home care or residential care of a spouse.

Ms Biti said the PLS and other equity release options may help provide relief for those waiting for home-care packages.

“The one problem we still have is that according to the Australian Securities and Investments Commission (ASIC), only advisers authorised under an Australian Credit Licence can provide advice on the PLS,” she said. “The Financial Information Services (FIS) officers at Centrelink can also provide information as they are exempt from the licencing requirements.”

According to the Department of Social Services, under the expanded PLS, four situations can occur:

  • maximum-rate age pensioners can borrow up to 50 per cent of the maximum rate of fortnightly Age Pension
  • part-rate age pensioners can top up their pension payments up to a maximum of 150 per cent of the full fortnightly Age Pension
  • self-funded retirees who have a loan under the existing PLS can increase their loan by any amount up to the 150 per cent threshold
  • self-funded retirees who are precluded from any loan under the existing scheme can borrow up to the full 150 per cent of the maximum rate of fortnightly Age Pension.

This expansion of the PLS effectively means the Federal Government makes money (the difference between interest charged and borrowing rates) through the need of retirees to supplement their income. It also sets the Government up as a lender, vying with other financial institutions offering reverse mortgages.

Were you alarmed that funds obtained through the Pension Loans Scheme were assessable? Have you investigated the extension of the scheme?



    To make a comment, please register or login
    29th Aug 2018
    The PLS is just another scheme by the government to swindle you out of the pension. Their idea is for you to mortgage your home and use YOUR money to live on, thus relieving the government of the burden of giving you a pension (which is your entitlement).
    Morrison and his cronies conjured up this idea to help fix up the budget bottom line (as they claim).
    What a load of BS. Just don't fall for this trap. It is a con.
    29th Aug 2018
    It is time for all of us (that means you) to rant at our MPs and Senators daily to take action for human decency and a huge stress reduction for pensioners

    A pension is not welfare.

    Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules.

    Hiring more Centrelink staff will only increase taxpayer’s costs for processing the creeping insane red tape monster system politicians and well paid bureaucrats have created.

    Help scrap it now. Become a hero.

    Even poorer New Zealand has a NO ASSET pension so it is cheaper and user friendly.

    Why worry that few million$ earners get it too. That is peanuts to them, not enough for a good vintage champagne.

    Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be part of 3 million waiting queues and lost calls?

    Does your MP really like being part of the system that allows this indirect abuse of the elderly?

    This abuse is actually sponsored by our government and forced down to Centrelink and borders on a criminal act.

    Why do MPs normally compassionate persons let this Centrelink abuse happen at taxpayers’ expense?

    Some opposition and independent MPs stand to lose their chance at being part of the needed government changes

    We all need to tell our MP and senators every day that these criminal asset tests for a pension must be dropped now.


    Help yourself and others, today and every day, pass this demand on to all government, opposition and independent MPs and senators who could help us to get a fair deal on pensions
    29th Aug 2018
    We get it. Now please stop!
    29th Aug 2018
    The politicians don’t get it so keep it up until they stop stealing our entitlements.
    29th Aug 2018
    This broken record is really becoming a pest!!!
    29th Aug 2018
    Keep it up GrayComputing. Keep it up until everyone wakes up and supports the cause, making it very clear to all politicians that they MUST change this seriously inequitable, cruel, and economically damaging test. It's WRONG, and it's just creating a huge incentive for people to reduce their savings, which is harmful for them, harmful for the nation, and harmful for the next generation.
    11th Mar 2019
    I also agree wityou GreyComputing. I've written to my local MP whom I hope will be looking for a new job come June. The new government will then have the chance to remove the silly means tests. An OAP should be that alone! cheers
    29th Aug 2018
    Just to clarify the point about PLS income been assessed for aged care. It was assessed as income until 2 months ago, but the Department then realised it has to be amended to

    a) be assessed the same as the private reverse mortgage market and

    b) would not be a negative towards the concept of those receiving care at home having to pay future higher costs plus being penalised for accessing equity

    The amounts nominated of $11,799 and $17,787 will never be allowed/legislated. Borrowers with lower values in security will potentially have a net equity position in later life that determines they will become partially supported/fully supported by Government in aged care.

    The ASIC report accepts the need for some older Australians to access equity for cost of living needs, but will require a better conversation about later life needs as part of the application discussion. Lenders and Credit Advisers will need additional accreditation to provide that advice.
    29th Aug 2018
    You still have to take it as a fortnightly amount, so no help for people who need a lump sum to pay for house repairs or buy a car. How do people pay for home care packages now? I thought they were means tested. The Government should increase the OAP to a reasonable level. This is another scheme to rob people of their homes. Talk to your family first. Better they help out now and maintain their inheritance
    29th Aug 2018
    Yes indeed Sunday and a lot of home help is far cheaper sourced within the community away from expensive private government sponsored providers. Like the current job placement agencies these operators are just taking tax dollars and aren't as efficient or effective as they could be.
    29th Aug 2018
    It also seems to me, after an initial cursory reading, that once again, those on a part pension are actually helped more. How does this work?
    29th Aug 2018
    Agree with most here and especially Graycomputing. How do we raise this in the public conscience ?? via the media and whats the next step a revolution of some sort ??
    29th Aug 2018
    Yes Johnp....a revolution. Hopefully there are some senior citizens out there with enough energy and nous to stand and represent retirees (especially pensioners) in our parliaments, and return government back to a centrist position, where equality, equity and compassion are the norm...
    29th Aug 2018
    You can't rely on information from the Department of Human Services as they seem to move the goal posts as it suits. And one has to question the value of knowledge received.
    Lucky Lady
    29th Aug 2018
    Question for Janelle Ward, Author of this pertinent article:
    1. It's stated 'Loan repayments are set at an interest rate of 5.25 per cent per annum'
    2. ' Ms Biti said the interest rate was lower than commercial market rates'
    3. It also sets the Government up as a lender, vying with other financial institutions offering reverse mortgages.
    Fact: Reverse mortgages only offer 'compound' interest rates, being the reason why home equity often ends in 'zero' equity!
    QUESTION: Please clarify if Govt is actually offering 5.25% annual interest or 5.25% COMPOUND INTEREST (same type of interest offered by private Reverse Mortgage banks)= huge difference! Please clarify...Thank you!

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