The Pension Loans Scheme

Barbara is interested in the Pension Loans Scheme but can’t find detailed information on how it will work.

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Q. Barbara
Do you know how the new Pension Loans Scheme system, supposedly coming into effect in July, is going to work? I can only access vague information at the moment. Maybe you know more?

A. The Pension Loans Scheme (PLS) allows age pensioners to borrow against the value of their home and not make repayments until the property is sold.

The unpaid interest accrues and compounds over time, and will be taken from the proceeds of the home when sold.

The PLS is similar to a reverse mortgage, but borrowings can only be taken as fortnightly income payments and not as a lump sum.

The proposed changes, which will come into effect on 1 July, include making the scheme available to anyone of pension age, whether they receive the Age Pension or not, and increasing the amount that can be borrowed.

Previously, full-rate age pensioners could not borrow under the scheme, but they will now be able to borrow up to 50 per cent of their annual pension. Higher amounts will apply for part-pensioners and self-funded retirees.

The PLS interest rate is currently 5.25 per cent per annum, which is higher than home mortgage rates but lower than typical reverse mortgage schemes.

Retirees who are looking to top up their income or who are asset rich but cash poor, may be interested in the scheme. But to do so, they must be prepared to dig into the equity in their home.

If you are interested, you should discuss whether this scheme would work for you with a Centrelink Financial Information Services officer.

Written by Ben

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