How the Pension Loans Scheme works

Some pensioners can borrow instalments from the government.

How the Pension Loans Scheme works

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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    COMMENTS

    To make a comment, please register or login
    AutumnOz
    14th Aug 2020
    10:59am
    This sounds like just another rip off of the Australian people by our government.
    PS "government" means those of any political persuasion not just the current neoliberal folk.
    Triss
    14th Aug 2020
    11:42am
    I agree with you, AutumnOz. So you take out a loan to give you a bit if financial aid, subtract the interest and fees so you end up with less, but I’ll bet CentreLink still records the original amount which for some might be a decrease in pension payments. Lose and lose.
    Horace Cope
    14th Aug 2020
    11:55am
    "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? "

    We have no intention of taking out a pension loan at this time but have no idea what our future circumstances might be. We live comfortably and enjoy our present lifestyle which includes travel but we don't spend a lot of time eating out or having a daily coffee in cafés so it may be that we live frugally. What our kids/grandkids get when we die is wholly dependent on how long we live and how our health holds out. Retirement villages which take a lot of the sale price or nursing homes with a large entry fee may dictate what our heirs will finish up with.
    older&wiser
    14th Aug 2020
    2:02pm
    If I knew when I would drop off, I would take out one of these loans. And make sure the balance owed at the end would be NIL!
    Lookfar
    14th Aug 2020
    4:35pm
    The spider under the pillow is the inclusion of compound interest, money lent by a bank or the Govt is vitually created out of nothing, when you 'pay it back' they then have money they didn't earn nor had before, win for both parties.
    Charging minimal interest to cover expenses is sort of not too dubious, as long as it isn't excessive, but charging compound interest on top is Daylight Robbery.
    Their only justification is that they want more money ever more quickly, without working for it, what sort of justifcation is that?
    Sundays
    14th Aug 2020
    6:27pm
    The scheme doesn’t assist those who need a lump sum for capital replacement, or large repairs. They have to save up first and have their savings deemed. The interest rate is far too high in the current environment and as previously mentioned, the compound interest is not justifiable. Most pensioners will never be able to pay the loan back until the house is sold.
    Sundays
    14th Aug 2020
    6:27pm
    The scheme doesn’t assist those who need a lump sum for capital replacement, or large repairs. They have to save up first and have their savings deemed. The interest rate is far too high in the current environment and as previously mentioned, the compound interest is not justifiable. Most pensioners will never be able to pay the loan back until the house is sold.
    Pension Booster
    16th Aug 2020
    3:45pm
    To correct some factual and important errors in this article on the government's Pension Loans Scheme (PLS).

    Firstly, it is now available to any Australian resident/citizen who is over 66 years of age own real property in Australia. That includes both self-funded retires as well as seniors receiving the age pension. Centrelink's website often causes confusion on this aspect of the PLS.

    The article also doesn't mention that the PLS works like a reverse mortgage, which in simple terms means seniors are under no legal obligation to make any repayments of the loan until (1) they, or their estate, sell the property, or (2) they permanently vacate the property (say to move into aged care). When this happens the government must be paid back in full including all accrued interest.

    Unlike commercial providers of reverse mortgages, the government will accept any form of real property anywhere in Australia.
    Lookfar
    16th Aug 2020
    4:08pm
    hi, 'pension booster' that the repayments are including "COMPOUNDING" interest, both unnecessary and slimey, is the reason no one should sign up for this hidden tax ripp off.
    Millie
    7th Sep 2020
    12:33pm
    I think it is disgusting that some are forced to do this. If the pension was paid at a live-able level, in particular for singles, this would not be necessary.
    It is so wrong that you need to put your house up as security when they, the Govt ( with the Government scheme) don't offer a lump sum loan but instead, dribble it out, then add compound interest.
    This hasn't been designed in the interests of pensioners.
    At least Reverse Mortgages offered by commercial lenders do, firstly give a lump sum of choice and allow you to spend it as you decide. There is still compound interest unfortunately. It is wise to pay regularly the interest if you can, although it is not a requirement. Assuming your house is increasing in value, when the time comes to sell, the added value will help compensate for the loan taken out.


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