Senate crossbenchers are urging the federal government to enable age pensioners to boost their retirement incomes by giving them the ability to borrow against the equity in their homes through an expansion of the Pension Loans Scheme (PLS).
The PLS is a reverse mortgage scheme where retirees can access an income stream by borrowing against their housing equity. Currently, the scheme can only be accessed by part-pensioners or those unable to receive a full pension because of their assets.
Two Australian think tanks, the Australia Institute and Per Capita, have previously suggested expanding the scheme to include full pensioners, and now Independent senators Jacqui Lambie, Glenn Lazarus and Nick Xenophon, along with Motoring Enthusiast Party's (MEP) Ricky Muir are doing likewise, arguing that it’s sensible and fair, and may help to contain expenditure on the pension for the government.
Under the changes proposed in the second Hockey Budget to tighten the asset test threshold, close to 91,000 part-pensioners would lose their benefits, whilst 235,000 others will receive less.
Should they go ahead, extending the PLS will help those who are set to lose the pension under these new budget measures. Expanding the PLS could also help pensioners cover aged care costs and, if the family home is eventually included in the asset threshold test, would mean that they are less likely to have to sell their home in order to fund their retirement.
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It can be tough for pensioners to live on the Age Pension alone, so if they have the option of borrowing against their own property in order to subsidise and, consequently, enjoy a higher quality of life in retirement, it should be made available to them. And if the government is looking for ways to make pension spending more sustainable, then how could expanding the Pension Loans Scheme (PLS) to all pensioners be a bad thing?
It’s one challenge to live off the Age Pension alone, but how are age pensioners expected to cover any ‘surprise’ costs that can often arise, such as medical emergencies or illness that requires palliative care or home assistance? The ability to borrow against the equity in their home would help to meet these types of expenses without eating into an income stream that is already being stretched in order to get by day-to-day.
Expanding the PLS to all pensioners could give the government the freedom to cover more bases when it comes to making pension spending more sustainable, and, should the PLS be expanded, the government’s pockets won’t be poorer for it, as the loans involved would be paid upon the eventual sale of the property, or would be paid from deceased estates.
Should the family home one day be included in future assets tests, expanding the PLS would mean that retirees wouldn’t have to move because it would still allow them to access an income stream from the equity in their own homes, rather than from the government.
At the end of the day, if you own your home, then it’s your equity and, coupled with sound financial advice, it should be your decision as to whether or not you wish to borrow against it.
In any case, as long as the debate over making pensions more sustainable continues so, it seems, will the interest in expanding the Pension Loans Scheme.
Do you think the Pension Loans Scheme should be made available to all pensioners? Would you be inclined to borrow against the equity in your home should such a scheme be made available to you? Do you foresee any danger in enabling an expansion of the current scheme?
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