Will loan scheme 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?

Related articles:
Loans scheme broadened
How the scheme works
The costs of living longer

Janelle Ward
Janelle Wardhttp://www.yourlifechoices.com.au/author/janellewa
Energetic and skilled editor and writer with expert knowledge of retirement, retirement income, superannuation and retirement planning.
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