11th May 2018

All pensioners can now access cheap government loans

FONT SIZE: A+ A-
All pensioners can now access cheap government loans
Olga Galacho

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?

Are you eligible for an Age Pension? Do you know your rights? The RetirePlanner™ tool has all the information your need. 

Related articles:
Cashing in on your property
Can your home fund retirement
Reverse mortgage alternative

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.





COMMENTS

To make a comment, please register or login
Chris B T
11th May 2018
9:42am
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.
BJ
11th May 2018
10:32am
Well said two sets of rules it will never change polies look after each other and forget the rest
George
11th May 2018
12:46pm
Good comments, Chris.
Old Geezer
11th May 2018
1:07pm
You wont need a loan if you live within your means either. The more people on welfare get the more they whinge and want.
Mad as hell
12th May 2018
6:06pm
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.
OnlyGenuineRainey
16th May 2018
7:52am
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.
Joy Anne
11th May 2018
10:22am
Chris yes so correct. This does not help Pensioners paying exorbitant rents. Does it??
Grateful
11th May 2018
11:44am
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.
john
11th May 2018
12:46pm
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.
koshka
11th May 2018
11:07am
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.
Adrianus
14th May 2018
8:47am
Dignity is a feeling, its not an activity.
johnp
11th May 2018
11:28am
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 !
Old Geezer
11th May 2018
1:08pm
Who cares about the pollies there are only a relative few of them but millions on welfare.
johnp
11th May 2018
1:24pm
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.
OnlyGenuineRainey
16th May 2018
7:49am
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.
rina1213
11th May 2018
11:54am
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.
Aussie
11th May 2018
11:59am
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 ....
niemakawa
11th May 2018
9:06pm
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.
sunnyOz
13th May 2018
10:46am
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.
maelcolium
11th May 2018
12:11pm
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.
john
11th May 2018
12:49pm
Globalisation has destroyed the economic fabric of the world mate!
Adrianus
14th May 2018
8:48am
Isation is worse than warming.
andromeda143
11th May 2018
12:13pm
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!
john
11th May 2018
12:57pm
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!
Kathleen
11th May 2018
12:52pm
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!
Old Geezer
11th May 2018
1:09pm
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.
Kathleen
11th May 2018
1:46pm
How much is your estate OG?
Chris B T
11th May 2018
2:29pm
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.
OnlyGenuineRainey
16th May 2018
7:57am
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.
niemakawa
11th May 2018
1:31pm
My answer: NO. I intend to leave my assets to family. This scheme will be disastrous for anyone that hands over the deeds of their property to any Government.
sunnyOz
13th May 2018
10:49am
This is where I strongly disagree with you. I am not saving and existing so that I can leave assets to my family. I worked bloody hard for the little that I have. They can do the same.
Radish
14th May 2018
4:24pm
I am one hundred per cent in agreement with you SunnyOz...

I could never see the sense in people living on the smell of an oily rag so they can leave assets for their children.

My parents lived a great retirement travelling etc(my mother never worked in her life) but my father was frugal during his working life and everthing he got he worked for. His parents left him nothing as his father died when he was 15.

I told him to enjoy the fruits of his labours and he and Mum did.
Sundays
11th May 2018
1:44pm
I hate this proposal. Instead of increasing the OAP, to a reasonable level, the Govt is now trying to get people who worked all their lives to pay off a mortgage to take out a new one, so they can use their only remaining asset to fund retirement. Houses don’t always go up in price, just ask people in former mining towns. As for the examples, for $6,000 a year paid fortnightly, Janet’s family will pay the Government back $300,000. How is this a good deal.
Scottishlass
11th May 2018
2:32pm
A lower interest rate might have me interested. But the rate is too high.
If they lowered the interest rate more people might do this. And the economy would benefit as more people would have more money to spend.
sunnyOz
13th May 2018
10:50am
And what's to say future governments won't raise that amount?
niemakawa
11th May 2018
2:39pm
Governments cannot be trusted to act fairly. Look what they have done to Super!!
GrayComputing
11th May 2018
7:35pm
NO ASSET TEST FOR A PENSION EVERV AGAIN!
It is time for all of us pensioners to rant at our PMs every day to take action for human decency and a huge stress reduction for pensioners

NO ASSET TEST FOR A PENSION EVERV AGAIN!
A pension is not welfare.

Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules
Even poorer New Zealand has a NO ASSET pension so it is cheaper and user friendly,

Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be part of 3 million waiting queues and lost calls?

Does your MP really like being part of the system that allows this indirect abuse of the elderly?

This abuse is actually sponsored by our government and forced down to Centrelink and borders on a criminal act.

Why do MPs normally compassionate persons let this Centrelink abuse happen at taxpayers’ expense?

Some opposition and independent MPs stand to lose their chance at being part of the needed government changes

We all need to tell our MP that these criminal asset tests for a pension must be dropped now.
NO ASSET TEST FOR A PENSION EVER AGAIN!
niemakawa
11th May 2018
7:42pm
I agree entirely with your comment. Have been advocating for a full age pension for all regardless of income and assets. Anything less is an insult and as you rightly say, not to do so, borders on a criminal act.
johnp
11th May 2018
8:41pm
Agree. As I said above. I can feel a revolution coming on. Cos they can, the pollies are ripping off the system in so many ways and giving insult to self funded retirees. !! They subscribe to the meme, Do as we say not as we do !
George
11th May 2018
8:54pm
Agree with the above comments. Pollies special pensions should be scrapped altogether, and instead we should have Universal Pension for all without any Assets, Income or Partner tests, only based on Age (65) and Residency (say 15 years). Automatically, Centrelink costs will drop massively, and their harassment of pensioners will also cease.

We would have a much fairer country where everyone can live decently with incentives in place to do better without being punished for it.

Shocking that we don't have a single political party driving this agenda - mainly due to the pollies special untested & large pensions!
musicveg
11th May 2018
8:29pm
I can see a lot of the extra money getting spent, which means more money for business, especially the pokies. Bad advice to do RM, just another way for business to make profits.
Scottishlass
11th May 2018
8:42pm
No assets test for pensioners is the way it should be. It works in New Zealand and in the UK.
It’s fair to all.
VeryCaringBigBear
12th May 2018
6:59am
Just been doing some rough numbers in my head and if one was to buy the most expensive houses that could afford leaving them just enough in assets to get full pension plus benefits and access this scheme they would be better off than being a self funded retiree. The $2 million they will get from the pension would be more than enough to any interest incurred. There is a point where when interest rates rise this may not be as good though.
Sundays
12th May 2018
7:13am
Yes, the devil is in the detail. The article says no impact on the pension provided the money is spent and not hoarded. Would saving it for a new car, or home repairs constitute hoarding. I suspect it means the money will be deemed while in the bank account. Not such a great scheme then, interest on the loan and deeming on the money.
johnp
12th May 2018
10:51am
Great info and comment VCBB (and constructive comments from some of the others). Just like to know how you worked out this "$2 million they will get from the pension" ??
VeryCaringBigBear
12th May 2018
3:09pm
I used discounted cash flow of what pension would cost per person over 25 years. It us how actuaries work out such things.
johnp
12th May 2018
4:51pm
Thanks VCBB; understand and makes sense to me now
Good choices
12th May 2018
10:25am
I have an elderly friend who had the Reverse Mortgage, I think she borrowed 50,000 and in a number of years she owed 80,000, I don't know what the rates were then, anyway she had to sell her lovely home to pay back the debt and was left with just enough to purchase a small unit in a retirement village where you cannot claim rent assistance.
And yes the interest rates for the Govt. RM are tooooooo high.
There is another way, it's called a HOME EQUITY LOAN what happens here is you decide the percentage of the property you wish to sell to a provider, which are certain Banks, not sure, who, the percentage you decide on is how much money you think that you will need. I think that the Institution put a Caviet on your property, you don't pay anything to them until the house is sold and they only take the percentage that you decide on, no interest at all.
meg
12th May 2018
10:52am
so the government will take your asset, rather than the banks and take your children's inheritance
Scottishlass
12th May 2018
12:15pm
Home Equity Loans have high interest rates too
BJ
12th May 2018
12:50pm
Don't forget that Turnbull, Morrison and the nationals have kept the worst of Abbott's 2014 budget measures including increasing the age pension to 70.

Bad news for all of us who are at preservation age now either retired or in the last year or two.

Turnbull and Morrison pulled out from underneath every person over 55 3 years of security.

And with those savings from hitting the most vulnerable and aged, they gift 65 billion in tax cuts to multinationals and big banks, absolutely shameful.

Don't forget this at the next election.
johnp
15th May 2018
10:42am
thanks BJ. Yes I will remember at the next election. Also cos the pollies are abusing taxpayers money with all their perks, travel, salaries etc etc. While those on such as newstart, OAP etc are struggling so we are back to the dark medieval ages, Self funded ones are being used to support all the above as well. Trouble is the alternative may not be much better.
Good choices
12th May 2018
4:30pm
Sorry it wasn't a Equity release loan, it is a Homesafe Equity Release, Bendigo Bank is one that provides this, you sell a portion of your house eg. 20% you get a cheque for how much that amount of your house is worth and when your house is sold, that is when that 20% is kept by the provider and no interest, no interest, no interest
musicveg
12th May 2018
4:50pm
Now that is the way the Government should do it, but how do the banks make their money, is it that they use it to invest and keep all the profits of that investment?
musicveg
12th May 2018
4:52pm
Also how does that effect ones pension? Will Centrelink take some of it?
Scottishlass
12th May 2018
5:36pm
My thinking is there will be a catch. They will undervalue the home so they get 20% of a larger amount plus any growth and it will effect pension
Fair Go
13th May 2018
4:47pm
Hang on a minute, not all of us own a property worth $400,000 to $800,000! I live in a retirement unit and so cannot borrow on it, even though I paid for it. And why should we borrow? What we need is a decent pension in the first place, as we are on the low end of pension amounts compared with the rest of the developed world. Our pension is a national disgrace for a so-called wealthy country. I don't have any debt and yet am still not making ends meet. What a cop out by the government. I noticed that nobody, absolutely nobody, mentioned the old age pension in the budged. Money going in every direction and not a cent to pensioners. I am disgusted with this country, or at least its government.
Adrianus
14th May 2018
8:51am
Fair Go, we have to borrow because we want higher wages and higher prices and governments which waste tax revenue.
Justsane
14th May 2018
4:45pm
No more money to people on Newstart either. Not been increased for a quarter of a century under either the LNP or Labor. In fact, Labor took money from single parents by making them live on Newstart. And kids going to school hungry because parents cannot afford enough food. So good for the mental and physical development of the next generation. This government just does not understand or care about these people. It knows how to malign them though.
musicveg
14th May 2018
5:48pm
So true Justsane, many kids are turning to crime too, younger and younger, they just walk in and grab snacks from shops. It is a disgrace that our wealthy country is not looking after the vulnerable. They put parents on Newstart to encourage them to work and how can that happen if the jobs are not there especially in rural areas. And even if they do find work single parents have to leave their kids unsupervised after school. You are right about good mental and physical development depends on good nutrition not all the cheap and nasty food they can only afford. It has been my theory all along that children are getting more and more depressed, suicidal, and more badly behaved because of lack of nutrition and supervision. Also not to forget many pensioners going without proper food are getting depressed too. Lack of sleep with worry contributes too. Charity organizations are overworked like never before too. Housing has skyrocketed and yet there is still working people in cheap Government housing too while people with kids sleep in cars. In 25 years of not raising Newstart or Youth Allowance the cost of living has skyrocketed, when will they wake up to the suffering, whilst they keep getting pay rises for themselves, disgusting.We are building a generation of desperate people and that leads to more crime and social unrest.
Adrianus
15th May 2018
12:59pm
We really need to have 2 newstart allowances. One for those who want to look for work 5 days per week and the other for those who only need to jobseek 3 days per week. Of course the second group should get a higher rate.
Dragrush
14th May 2018
11:50pm
Some very good and sensible comments made so far to this issue. My concern is that because you cannot forecast and end date to when you will cease to need a pension or anything else , the debt just keeps growing and growing. When I made some enquiries the centrelink lady told me to be mindful that if you take out a PLS the caveat placed on your property may prevent a bank from giving you a lump sum loan say to buy another car or do a large home repair. The government is making sure that it is first inline to get any clawback of your assets.

The Bendigo Bank safe wealth release scheme is the only sensible way to unlock assets but why do they only have it operating in Melbourne and Sydney.........The government should encourage other lenders to take up this form of assistance and back them on it.
Justsane
15th May 2018
3:58pm
Adrianus, that is one of the most stupid comments I have ever seen. Wtf?
Justsane
15th May 2018
4:06pm
Adrianus. See how these people have been maligned by the Government and now this attitude has 'trickled down' to the general populace.
Justsane
15th May 2018
5:45pm
Adrianus: Sorry, I have just re-read your comment and it makes even less sense now.
Adrianus
15th May 2018
8:40pm
Tell me which comment it is that has you totally confused and I will do my best to explain myself?
Thank you for the compliment but what is it that you don't understand?
GregH
16th May 2018
6:59pm
Does the Government charge interest on the interest charges like the Commonwealth Bank does? If this compound interest applies then it is a very expensive loan product.
Justsane
17th May 2018
3:12pm
Hi Adrianus,

You wrote:
"We really need to have 2 newstart allowances. One for those who want to look for work 5 days per week and the other for those who only need to jobseek 3 days per week. Of course the second group should get a higher rate."

First of all, don't people need to eat 7 days a week, irrespective of the number of days they look for work? Not to mention that the bills they have to pay are also not affected by the number of days they look for work.

Second, even if your idea of having two Newstart allowances was made reality, it would make more sense to give the higher rate to those who looked for work for five days rather than those who looked for work for three days a week, not the other way around. Or were you being sarcastic?


Join YOURLifeChoices, it’s free

  • Receive our daily enewsletter
  • Enter competitions
  • Comment on articles