8th May 2018
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Federal Budget 2018: Pension Loans Scheme broadened, amounts increased
Author: Kaye Fallick
Federal Budget 2018: Home equity loans scheme broadened

An expansion of the Pension Loans Scheme (PLS), which allows users to borrow against the equity in their homes, means funds will now be available from 1 July to all eligible people of Age Pension age. The amount able to be borrowed will also increase, although PLS holders will not be able to owe the Government more than their home is worth.

How does this work? Currently, there are about 1.8 million age pensioners who own their own home, including 1.1 million maximum-rate age pensioners and 700,000 part-rate age pensioners.

Previously, this scheme was not available to pensioners on the maximum rate, or to self-funded retirees. Both groups will now be able to apply for this loan without entitlements being affected.

Applicants will be able to borrow against the equity in their home up to 50 per cent of the maximum rate of the full Age Pension per year – an amount of $11,799 for single pensioners and $17,787 for couple pensioners. Loan repayments are still set at an interest rate of 5.25 per cent per annum – unchanged since 1997.

According to the Department of Social Services (DSS), under the expanded Pension Loans Scheme there are four situations that can occur:

  • maximum rate age pensioners can borrow up to 50 per cent of the maximum rate of fortnightly Age Pension
  • part-rate age pensioners can increase their fortnightly payment by whatever amount increases their pension plus loan payment up to a maximum of 150 per cent of the maximum rate of fortnightly Age Pension
  • those self-funded retirees who have a loan under the existing Pension Loans Scheme can increase their loan by any amount up the 150 per cent threshold
  • self-funded retirees who are precluded from any loan under the existing scheme can borrow up to the full 150% of the maximum rate of fortnightly Age Pension.

Participants in the scheme do not have to increase their loan payment to the maximum 150 per cent threshold. They can choose to borrow or top up to an amount below the 150 per cent threshold.

This expansion of the PLS effectively means the Federal Government will make money (the difference between interest charged and borrowing rates) through retirees’ need to supplement their income. It will also set the Government up as a lender, vying with other financial institutions offering reverse mortgages. And while it is a helpful strategy for asset-rich, cash-poor retirees, pity the 15 per cent of retirees who rent and who have no such access to income relief.

Current rules

You may be able to apply for a payment under the Pension Loans Scheme if you:

  • or your partner are of Age Pension age
  • own real estate in Australia that you use as security for the loan
  • or your partner receives a rate of payment that is less than the maximum amount or nothing due to either the income or assets test but not both
  • meet Age Pension residence rules.

The current charge is 5.25 per cent compound interest on the outstanding loan balance.

Interest is added to the outstanding loan balance each fortnight until you repay the loan fully. The longer you take to repay the loan, the more interest you pay.

Have you ever applied for funds through the Pension Loans Scheme? Do the broader terms make it possible for you to apply?

Updated 14 May 2018: clarification of rules supplied by DSS

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    COMMENTS

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    OnlyGenuineRainey
    9th May 2018
    8:56am
    What a disgrace! The government cheats retirees out of their rightful retirement benefits - stealing the money that was paid by all current retirees to the ATO to fund their retirement - and then rips them off with interest rates way higher than current mortgage rates if they need to borrow against their home to achieve enough income to live on.
    Old Geezer
    9th May 2018
    11:13am
    Good idea for some extra income for retirees.
    *Loloften*
    12th May 2018
    5:04am
    OG - could u pls stop being such a supercilious "know it all"...it's obvious that u have far more than enough to enjoy a wealthy retirement & don't give a rat's a*se abt we, thru no fault of our own & worked hard for very many decades, are struggling due to unforseen & very sad circumstances like a spouse's long term illness "eating" into our capabilities to work so could care for him/her. I'm fed up with your LNP comments & gloating.
    sunnyOz
    9th May 2018
    11:19am
    So they deem pensioner income at 3.25% - but then charge 5.25% on these so called loans. Most bank/lending home loans are well under 4%. Once again - anything to gouge the OAP
    patti
    9th May 2018
    11:48am
    Bad luck if you are not a homeowner. I prefer my current Reverse Mortgage, which I took out two years ago to repay my mortgage so I have more pension income. I don't have to pay this back until I die or the house is sold. I think the "gumment" have realised that older people are numerous and vote, so are trying to sweeten us. While they are taking the $14 energy supplement back........not cricket, old chaps!!
    East of Toowoomba
    9th May 2018
    12:05pm
    Just got our electricity bill and was surprised to see that the Qld Gov chipped in $50 towards the bill. Can't remember what it was called, but there will be another $50 coming in 2019.
    HS
    9th May 2018
    1:00pm
    This loan scheme seems to be only for home owners who are not on a Full Pension already. Unless I understood incorrectly, home owners who are on a Full Old Age Pension already can only try to get a Reverse Mortgage at 6.5%.
    Once they get the reverse mortgage loan the amount is subject to Deemed Income rule which may reduce their full pension down to part pension.Right or wrong?
    Rodent
    9th May 2018
    2:37pm
    HS this link may help you

    https://budget.gov.au/2018-19/content/factsheets/3-financially-prepared.html#expansion
    HS
    9th May 2018
    7:57pm
    Thanks for this Rodent. It will take some time to read through.
    HS
    10th May 2018
    4:15pm
    I had a read of it. It is not for existing full payment age pensioners. It is for non and / or part pension payment pensioners who want to top up to the maximum full age pension payments.
    I also had a look at some reverse mortgage offers and they are very daunting. The only way a reverse mortgage might be manageable in order to retain the greatest equity in one's home, is if one makes monthly repayments over a 5 year period, but not for longer than 5 years. So, a $30,000 reverse mortgage might be manageable amount to repay $560 pm, over a 5 year period if, one is on a full pension but, part-pensioners? Nah! However, if one's situation is of "last resort", one has to do what they have do to survive.
    Dragrush
    9th May 2018
    3:07pm
    What happened to my post about PLS???
    Sundays
    9th May 2018
    7:30pm
    The OAP is not enough to live on, so instead of an increase the Government will take part of your only exempt asset (your home) via a reverse mortgage scheme at higher than bank rates. This is appalling, but for many the only way that they can have a decent retirement. The money you get will be treated as exempt Income, sold as if it’s a plus even though your mortgaging your home! Shame on this Government. A friend sold her home to her son at market rates because he was looking for an investment. She now rents it back using her rent assistance in part. It seemed a bit of a rort to me, bu I now think it was a good idea!
    Priscilla
    10th May 2018
    1:31pm
    It is definitely NOT A GOOD IDEA! It is totally ripping people off by charging 5.25 COMPOUND interest. You would have to be a moron to accept such conditions. Talk about daylight robbery.
    Rodent
    11th May 2018
    10:24am
    Dear HS

    With Respect -the NEW PLS covers everybody above 65years, including allowing a full Age Pensioner to get an extra payment up to the prescribed limit .

    Extract- (Full rate pensioners will be able to increase their income by up to $11,799 (singles) or $17,787 (couples) per year by unlocking the equity in their home. PLS participants have the flexibility to start or stop receiving PLS payments as their personal circumstances change, and generally repay the loan once their home is sold).

    I am not saying this is a GOOD idea only that it MAY be an option for some. I have a very useful Spreadsheet that does all the Calculations on Debt , including Cumulative debt that these scheme uses based on the 5.25%pa Compound Interest rate, which in todays market is at least 2% too high. I developed this spreadsheet based on the CURRENT scheme, but have run sum numbers on the new scheme to test the outcomes.
    Dragrush
    11th May 2018
    11:10pm
    Hi Rodent....thanks for your post . I would be interested in looking at a summary of your spreadsheet as the PLS scheme administrators will not let you have access ro the one they use and rely on you to see financial planners for the required data. I have done some simple calculations based on a one year top up for he to get a full pension but as I am using an investment property for security the actual asset vale will drop each year ( assuming my property value keeps stagnant or drops even further) Its interesting how Centrelink assesess your property asset value....they use satellite data for aerial viewing of the the property and then obtain real estate agent data and the local government tax or rates figures to arrive at a figure for your property. There is no way to appeal their decision. Cheers Dragrush

    dragrush
    GrayComputing
    11th May 2018
    10:33am
    NO ASSET TEST FOR A PENSION EVERV AGAIN!

    It is time for all of us to rant at our PMs 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!
    Dragrush
    11th May 2018
    10:58pm
    I have been in interested in the Pension Loan Scheme but have not been happy with the overall concept and feel that the changes made by the government in this budget are only cosmetic and are not a gift or anything resembling a showing of sincere concern for older people who are cash strapped.
    The erosion of the value of the home asset if even a modest amount is taken to top up a full pension becomes horrific after the 5 year period . That is because you have to repay the 5 years of top up pension given to you and then pay the compounding interest on the total amount after the 5 year period . I have worked out that even a simple loan like this of say of $14,000 per year will cost you about $25000 in interest after 5 years. I dont think there are many people who would be able to repay this loan after that time.
    A better solution surely would have been for the government to develop a home equity wealth sharing scheme like the Bendigo Bank has in operation in Sydny and Melbourne and to support it to be used throughout Australia . I would happy to surrender up to 30% of the final sale value of my house and have no repayments until then or when I die and let the increase in asset value be the payback. It could be funded from the super nest egg which has trillions and it would work. Check out the Bendigo bank site for evidence. Meantime lets collectively show a middle finger to these so called government assistance schemes and ask why dont they really try to help us instead making our last few years even tougher..
    Rodent
    13th May 2018
    2:40pm
    Dragrush

    Don't know if this will work, as you know cant Post Excel on this site.
    This Summary is based on these inputs
    Home Owner Pensioner Couple $1368.20 per fortnight - normal payment, Additional payment amount =$684.11 ie the max amount allowed.

    Results as per this
    Year Actual receipts Interest Total Debt
    1 $17,786.86 $484.86 $18,271.72
    2 $18,320.47 $1,458.67 $38,050.86
    3 $18,870.08 $2,512.06 $59,433.00
    4 $19,436.18 $3,650.06 $82,519.24
    5 $20,019.27 $4,877.98 $107,416.49
    6 $20,619.85 $6,201.45 $134,237.79
    7 $21,238.44 $7,626.44 $163,102.66
    8 $21,875.59 $9,159.21 $194,137.47
    9 $22,531.86 $10,806.43 $227,475.76
    10 $23,207.82 $12,575.11 $263,258.69
    11 $23,904.05 $14,472.70 $301,635.44
    12 $24,621.17 $16,507.02 $342,763.64
    13 $25,359.81 $18,686.39 $386,809.84
    14 $26,120.60 $21,019.55 $433,949.99
    15 $26,904.22 $23,515.77 $484,369.99


    At 15 years $330,816.28 $153,553.71 $484,369.99
    Total receipts Total interest paid Total debt owing at 15 years

    NOTE these calcs assume an Increase of amount paid of 3% pa

    NOTE when the amount is paid ie Pension plus additional amount its paid for a COUPLE as each member get 50% of the amount

    ALSO the govt fact sheet has TWO examples , one for a Couple with $850k Property who are on the MAX but choose to receive the EXTRA amount making their payment $2052 pf ILO the normal max of $1368.20pf. I haven't run these numbers yet but at first glance they look a little wrong, especially the amount owed of $900k after 20 years?

    The Homesafe Equity release option product is also good for those wanting a lump sum BUT in simple terms if your home was valued at $1,125,000 and you chose 25% as the equity to give them $ ie $250,000 you would only receive a MAX of about $140,000 in CASH as the lump sum. BUT this RESULT depends on your AGE, and its hard to get an answer out of them UNLESS you go through the process!!


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