January 30, 2020 
30 Comments 
After months of intense lobbying, the government finally cut deeming rates in July last year, recognising that they were out of step after the Reserve Bank’s cuts to official interest rates. In other money-saving news for retirees, the interest being charged on funds drawn via the Pension Loans Scheme (PLS) has also been cut.
Older Australians receiving payments under the PLS automatically began to benefit from the reduced interest rate from 1 January.
The interest rate dropped from 5.25 per cent a year to 4.5 per cent a year.
The PLS is essentially a reverse mortgage, except you can’t take it as a lump sum and interest compounds fortnightly.
The scheme was expanded in 2019 to include all eligible people of Age Pension age who have securable real estate owned in Australia.
The amount that can be borrowed, via a fortnightly loan, increased to 150 per cent of the fortnightly Age Pension.
Uptake of the scheme has been low – there were about 1100 participants late last year according to federal Treasurer Josh Frydenberg – but a surge is expected.
Calls to cut the interest rate being charged mounted as the Reserve Bank of Australia (RBA) cut the official interest rate to a historic low of 0.75 per cent.
Former Labor leader and current MP for Maribyrnong Bill Shorten said in Parliament: “The government is essentially acting as a bank for older people with mortgages. It has a good-hearted public service goal at heart.
“But when the Reserve Bank cut the official cash rate to a record 0.75 per cent on 1 October, this led to bank loan rates at three per cent and, indeed, as low as 2.9 per cent, while the government’s Pension Loans Scheme is still charging older Australians at 5.25 per cent.”
Mr Frydenberg confirmed that the government would review the rates, but said 5.25 per cent was “lower than the rates charged by the private sector”.
In other news, The Age reports that the Maximum Permissible Interest Rate (MPIR), which applies in residential aged care, has been cut to a new low of 4.91 per cent a year.
Rachel Lane, principal of Aged Care Gurus, explains.
“The MPIR applies to people funding their own accommodation in residential aged care.
“Essentially, whatever you don’t pay as a lump sum (known as a Refundable Accommodation Deposit, or RAD), you pay as a daily charge (DAP), which is calculated using the MPIR.
“For example, if the RAD is $500,000 and you pay $200,000, you will pay interest on the outstanding $300,000 at 4.91 per cent, or $40.36 a day.”
Does the lower interest rate on PLS borrowings make the scheme more attractive to you?
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Dipisha Chand
Anyone would have to be desperate to take out a reverse mortgage on their home. As a full age pensioner I would never consider such a rip off arrangement.
Absolutely – wouldn’t touch it with a barge pole (Vladimir Kozlensky, know as The Vulgar Boatman)…
Indeed,rip of
Any schemes where you are paying more than bank interest is a disgusting rort. It’s just People making excessive money out of elderly people who have NO CHOICE where they go to spend their declining years.
Rural people are forced into care up to two hours away from family and friends into homes. They don’t know anyone around them or who is caring for them and then they are over charged for the privilege of it. Disgraceful, way to treat people, many of whom are confused and frightened.
Disclaimer: will save thousands for those with many thousands stashed… something no sane person would do these days given government avarice.
Still nothing wrong or difficult about simply taking the real earnings annually each year, via the ATO which has all such records, and using the real figure for income…
Trebor. Is that your girlfriend ?? 😉 😉
Nah – she said she wanted to be – but you know what liars women are… one of those things you get in spam ….
OI!That`s my WIFE!!!!!!
Buggar – you need to get home more!!
Keep your sense of humour – I said to the ex’s daughter (divorced, just moved, job to start in three weeks) that I had some meat scraps in the fridge – for the kids, but I’d see if I had anything for the dogs…. humour – love it or leave it…
If “she said she wanted to be”. then why not just lie back and accept !! 😉 😉
“Does the lower interest rate on PLS borrowings make the scheme more attractive to you?”
In our position, we have no intention of using a reverse mortgage but that is a personal choice and we wouldn’t, for a moment, suggest that our choice is the only answer. That old expression about walking a mile on someone else’s shoes applies as there are people out there with enormous problems and who have a need for access to money.
Whilst Frydenberg wants to equate the government rate with the market, there is a subtle difference. The market mainly has loans that charge interest on a reducing balance so the interest payments reduce each month. The PLS is not reducible, in fact it’s the opposite with interest increasing each fortnight so that borrowers are not only paying interest on principal but are also paying interest on interest.
In a word NO. There is nothing attractive to me about any of these schemes or reverse mortgages. Another point about PLS, if the government is charging an interest rate (ie 5.25%) significantly above the Reserve Banks cash rate (ie 0.75%) then it seems like a money making scheme rather than a benefit for retirees.
In a word NO. There is nothing attractive to me about any of these schemes or reverse mortgages. Another point about PLS, if the government is charging an interest rate (ie 5.25%) significantly above the Reserve Banks cash rate (ie 0.75%) then it seems like a money making scheme rather than a benefit for retirees.
No different to LNP government charging hypocritical DEEMING rates.
They wouldn’t drop the rate by .75% on DEEMING rates for cash term deposits over $84K for a couple.
NO way– I worked hard to pay off my mortgage and did it way b4 time because I hate debt — so there is NO way would have another one — this bank interest now is disgusting you get nothing — soon they will charge you to have a bank account —
Took this arrogant government long enough to wake up that the deeming rate was too high well over 2 years even though many had complained and had not a bloody thing done!
Talk about taking advantage of people in need – WOW! This is daylight robbery charging people an unreasonable interest rate. No one in their right mind should take out one of these loans. Not only should this interest rate come right down but also the deeming rate should be lowered to match the bank savings rates! Daylight robbery!
Whilst we are on the subject of interest rates. My biggest gripe is the fact that we are deemed to be earning 1% on the lower amount in our savings but 3% over anything above that. I don’t have a lot but enough to just stop me from getting the full pension. The best interest rate I can get is 1.55% I should have left my money in super.
Yes A Nana, you get sweet BA at the banks these days — but are still charged a heap IF you have a loan — or if you had to pay off a Credit card — I steer clear of these but it is daylight robbery for those that do
You are right about leaving it in super. I am on full AP, with minimal amount in super. But what’s there I try to leave there, because it’s earning hell of a better interest than the bank. Last year my super averaged around 13.5%, and whilst I realize this fluctuates, happy it’s there. A close friend took $75,000 out of her super to buy a motorhome to do the travel but after 5 months realised it wasn’t for her. She sold it for $65,000 but was annoyed she couldn’t put it back into super, only in the bank getting. 75%. As for the govt loan scheme, more like fraud scheme. Honestly, does anyone really expect the govt to bring in ANY system that would genuinely help seniors, not penalise them?