All pensioners can now access cheap government loans

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Home-owning pensioners struggling to fund the retirement they want have been thrown a lifeline courtesy of the Federal Budget 2018 – almost all retirees will be able to access a reverse mortgage, with the Government as the lender.

Under the expanded Pension Loans Scheme, Australians of retirement age will be able to top up their entitlements, regardless of whether they are part or full pension recipients.

Previously, only part age pensioners were able to access these funds and then only to the extent that they equalled a full Age Pension.

However, from 1 July 2019, the Government will increase the maximum allowable combined payment to 150 per cent of the Age Pension rate.

That means full-rate pensioners will be able to increase their yearly income by $11,799 and couples will be able to receive an extra $17,787 on top of the Age Pension.

Policy think tank the Centre for Independent Studies (CIS) has championed the extension of the loan scheme saying that it will help to boost the quality of life of many asset-rich but cash-poor seniors.

“It’s a really good idea and an opportunity that will improve retirement standards for many older Australians,” according to Simon Cowan, CIS research manager.

“I am surprised there weren’t more people taking advantage of the scheme before it was widened. I believe fewer than 800 of the 1.8 million pensioners who own homes were accessing their equity.

This reverse mortgage scheme deserves to be taken up by more pensioners, especially those who are living in an expensive house but do not have enough cash to spend on those things they need,” Mr Cowan told YourLifeChoices.

CIS estimates that retired Australians are sitting on $750 billion worth of untapped home equity and do not want to sell or take out a loan because they want to leave their asset to their children.

“What these pensioners may not be factoring in is that if they take up a modest pension loan for 20 or so years, by the time it comes to selling the house, the rise in property values would have outstripped the size of the loan that needs to be paid back. So in a sense, there will still be something to leave behind for the next generation,” he said.

“As far as I am aware, the top-up from a loan will not affect other pension entitlements, so long as the money is spent and not hoarded.

“Also, the way the mortgage is structured guarantees that over time, a pensioner cannot borrow more than what their house is worth. That is, they cannot leave a debt behind for someone else to pay.”

While the loans will be secured against a pensioner’s home, the amounts borrowed do not have to be paid back until the property is sold. Although if a recipient’s circumstances change, they may pay the loan back sooner.

The borrowings cannot be a lump sum as funds must be paid with the fortnightly pension. Amounts borrowed are non-taxable and will attract an interest rate of 5.25 per cent. This is one percentage point cheaper than reverse mortgages on the market and considerably less than the lowest interest rate for a personal loan of 7.65 per cent, according to comparison site Canstar.

While the maximum any retiree can claim is 150 per cent of a full Age Pension, individuals will have limits on how much they can borrow depending on their age, how long they intend to receive payments, whether they are single or have a partner, the value of the home and how much Age Pension they receive.

In one case study provided with the Budget papers, a single pensioner takes out a loan that boosts her fortnightly payments from $908 to $1135. Over the 20-year term of the loan, the pensioner has received an extra $170,000 in payments and accrued a debt of $300,000 including interest. However, her house has appreciated in value from $400,000 to $750,000. When the house is sold, $450,000 stays in the estate.

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? Do you think that the Federal Government should play the mortgage market this way?

Disclaimer: All content on the 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 ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regards 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. Financial comments provided by readers cannot be relied upon as professional advice, because they are not verified independently by YourLifeChoices.

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Written by Olga Galacho

73 Comments

Total Comments: 73
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    You wouldn’t need a loan for OAP if you raise the OAP by the amount of Payments To ILLEGAL MEMBERS OF PARLIAMENT. That is RECOVER ALL MONEY PROCURE BY THESE ILLEGAL’s every bit of it, Anyone Else Making Same Mistakes With Centerlink would have to Plus a Fine.

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      Well said two sets of rules it will never change polies look after each other and forget the rest

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      Good comments, Chris.

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      You wont need a loan if you live within your means either. The more people on welfare get the more they whinge and want.

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      I wouldn’t need a Government Reverse Morgage “loaon” if the LNP and Greens didn’t steal my part pensioner entitlements with their change to Pensioner Assets Test.

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      OG, you are VILE AND DISGUSTING with your nasty assumptions and rude insults. Go away, or learn some respect and manners. Many are struggling for very good reason and through no fault of their own. Decent people don’t bully them with nasty lies.

      Mad as Hell… you and many others! And now Shorten wants to finish the demolition job! Heaven help all retirees.

  2. 0
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    Chris yes so correct. This does not help Pensioners paying exorbitant rents. Does it??

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      How true!!
      And don’t you just love that theory???

      In one case study provided with the Budget papers, a single pensioner takes out a loan that boosts her fortnightly payments from $908 to $1135. Over the 20-year term of the loan, the pensioner has received an extra $170,000 in payments and accrued a debt of $300,000 including interest.However her house HAS APPRECIATED from $400,000 to $700,000.
      When the house is sold, $450,000 stays in the estate.

      Like this Budget being based on wages growth of 14% over the next 4 years!!!!! Tell the workers that.

      All expedient fatuous guesswork, just what happened to Peter Costello. All of his “predictions” just didn’t happen and all of the highly generous taxation handouts that he gave away have returned to bite us all on the bum, but, mostly the unfortunate young parents of today and the next 20 years.

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      It would help those who have assets but not a large cash flow.
      I find budgeting for us just OK, but we are always, just making it, with not much disposable income after everything else. But we own our home, some extra cash would be a good thing, and I bet there are many many pensioners who are in the same boat.
      The government talks about quality of life etc after retirement . Well? Being Mr In between is not very nice.
      If you are renting still then you would have nothing really to claim extra pension by using your property as collateral, you don’t have a property.
      So for my situation I could do this, BUT and this is a big BUT, what are the catches?
      I’d say your family if you were going to leave the family home to your children , but you lived to be ninety odd, your pension build up over years may see them paying the government back , its like reverse mortgage, is the only difference that you deal with the govt , and not our gangster friends in banking.

  3. 0
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    I have tried to get a R.M. from the “which bank” but they say that it was not possible since my $230.00 house was in a village for the over 50s (not a Ret. Village) I was wondering if the gov. would accept my proposition now so I can have a dignified existence.

  4. 0
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    Yep, I can feel a revolution coming on considering the pollies are ripping off the system in so many ways, Do as we say not as we do !

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      Who cares about the pollies there are only a relative few of them but millions on welfare.

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      the issue re the pollies is relevant; cos their behaviour etc causes a type of trickle down effects such as envy, resentment, social activity, so on. Resulting from that there is even higher unnecessary upward pressure for improved benefits by those that are at the disadvantaged end of the scale. So your point misses the point. Abuse of the system by a few is no justification.

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      OG, if we had HONEST, COMPETENT politicians, we would NOT have millions on welfare. The problem is the IDIOTS making policy to suit their self-serving objectives and cater to the vested interests of their rich buddies. End the rorts at the top and run the nation properly and millions would be able to work and earn, and tens of thousands would be able to save for retirement instead of feeling compelled to spend up big because savers are constantly persecuted.

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    it is still only a loan so really not helping at all. And a Government loan ! Do I trust them ? a big fat NO !!!! What happens if you need to go into care and a bond is required? We then have to take what ever is going which from my info would not be the greatest of care facility. No its not good at all. And as mentioned does not help people who have to pay rent so another “look how good we are” but really just taking advantage of the lower class.

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    The loan will not affect other pension entitlements ????? Yeahhhh sure ….probably today buy history tells me that in the future will be affected for sure ….. just look at other entitlements that already been affected after same kind of promise …. Is this another Bull from our great lair politicians ???? ….probably ….

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      It is just another Government(s) scam, nothing less. They want your home and intend to take it from you one way or another. Do not vote for any political Party that encourages Globalism. Australia for Australians, Africans for Africa, Asians for Asia, that is the only way. Multiculturalism is a destructive mechanism used by Governments to destroy National idendities.

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      Agree -the govt absolutely does NOTHING to benefit OAP’s – unless they can see some hidden agenda in it for them. I am tired of the constant changes, and who knows – future governments might raise the 5.5% interest rate? After all – banks raise rates all the time, regardless of what you signed up for.

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    Of course the CIS support this. They are a so called independent think tank lead by investment bankers and global Ceo’s. They are an anti Keynesian group with no credibility in macroeconomics and a right wing view of free market globalism which has destroyed the economic fabric of this country since the 1970.s. They don’t believe in social welfare and have no interest in helping cash poor retirees, so are quite happy to see the meagre assets of struggling home owning pensioners broken up. Their view is that less money spent on social welfare equals more corporate welfare which will trickle down to the masses ……. cough! I will enjoy wiping my rear end this this bunch of nonsense.

  8. 0
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    I love the way this government thinks. Let the average worker work all his/her life and pay taxes. Force him/her to also contribute to future pension by the superannuation guarantee. Then give the retiree a pittance as a pension but allow him/her to gradually whittle away the kids’ inheritance by living of a remortgage of the family home. This means the government can reduce pension payments (which worker has been paying for throughout working life) and there will be more available to pay politicians higher wages and higher superannuation.
    Politicians disgust me. They are constantly trying to find new ways to cut services and payments to the working class but are quite happy to line their own poickets and give enormous hand backs to big business via company taxes. After all the big businesses are the life blodd of their political donation rorts.
    Yegh!

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      The problem here is that big business is also a creater of employment , and we know greed is a major factor with business and politics, but somewhere you have to draw a line at trusting something.
      If there was a balance you could control yourself , and a set up inside this pensioner loan help out, then it maybe OK for some and give them a little more money to enjoy life.
      If you have children who will inherit from you, and the inheritance ends up being “sell the house ” then “‘GIVE ALL THE MONEY TO THE GOVERNMENT” , well that would be a nightmare, there are too many holes in this without a real guarantee to pensioners.
      Who have wealth in assets but no cash, if there are protections about how much people are allowed to safely borrow with a small cost at the end then it may be fine.
      But in the article above it says there are only about 800 people who have gone into this type of help out loan, I wonder why, perhaps its not advertised much from Govts’ because it has its dangers.
      This need clarification to the umpteenth degree!

  9. 0
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    Nah, don’t do it. I see pensioners losing their homes over this and even being in debt.
    A better way would be to sell your home and buy something less creating at least some emergency money. Always own your home not let someone else own it!

  10. 0
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    Everyone should have access to the old age pension if they want and when they die it becomes a debt to be repaid from their estate. That’s the fair way of doing it for everyone.

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      How much is your estate OG?

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      Which way is the wind Blowing, OG Has all the answers 1 day he’s best investor and has no need for any Gov Help.
      Next he lives in Caravan with no Power Issues.
      Lives within his OWN MEANS. Be damned for anyone else having the OAP.
      Very hard to take seriously.

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      Put a sock in it, OG, you greedy, self-serving man! Everybody should be entitled to the pension they worked and paid taxes to fund. And NOBODY should have to give up their estate. We have already paid the ferryman. Sad that politicians stole the money, but that’s not our fault and we shouldn’t suffer for it.

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