Pension Loans Scheme explained

The government offers a Pension Loans Scheme (PLS) for older Australians to get a voluntary non-taxable fortnightly loan, which can be used to supplement your retirement income.

If you pursue this option, you can choose the amount of your loan, but the money won’t be paid as a lump sum and you must repay the loan and all costs and accrued interest.

You can make repayments at any time.

To be eligible for the PLS, you or your partner must be of Age Pension age and you must be in receipt of a qualifying pension. The qualifying pensions for the PLS are the Age Pension, Carer Payment or the Disability Support Pension.

You or your partner also have to own real estate in Australia that you can use as security for the loan and have that real estate properly insured.

How much can you get?
How much money you are eligible for will depend on your age and how much equity you own in your Australian real estate.

The maximum loan amount generally increases each year as you or your partner get older.

Changes to the value of the real estate you use as security will also affect your maximum loan amount. If the value increases each year, your maximum loan will also increase. If the value decreases, then the maximum loan will also decrease.

You can get up to 1.5 times the maximum payment rate of your eligible pension each fortnight, but you are not required to borrow the maximum amount each fortnight.

Your combined pension and loan payments can’t exceed 1.5 times the maximum pension rate. Your loan payment will automatically increase or decrease to avoid this.

The PLS currently charges an annual interest rate of 4.5 per cent that compounds fortnightly on the outstanding loan balance. The longer you take to repay the loan, the more interest you pay.

What you can use as security
You can only use real estate in Australia as security for your loan.

It can be the home you live in or an investment property you or your partner own.

It can also be real estate owned by a company or trust. Either you or your partner must be an attributable stakeholder of the company or trust.

Property in a retirement village can be considered as security if:

  • you or your partner’s name is on the freehold title for the property
  • there isn’t a contract term that prevents or limits your ability to sell the property
  • you or your partner’s estate control the distribution of the asset.

Would you consider taking out a pension loan to top up your payments? Would you prefer to continue living frugally so that you can pass on a debt-free home to your children? 

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Written by Ben


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