20th Apr 2019
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How the Pension Loans Scheme has changed
Author: Kaye Fallick
How the Pension Loans Scheme has changed

What are the rules?
The Pension Loans Scheme (PLS) has been expanded 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, will increase to 150 per cent of the fortnightly Age Pension.

This means that full rate pensioners will be able to increase their annual income by up to $11,912 (singles) or $17,958 (couples) – based on the current rate of the Age Pension – by unlocking the equity in their home.

How much can you borrow?
The full details are yet to be revealed, but the Government states that the current PLS actuarially calculated formula, which limits the cumulative amount of loan plus interest that can be borrowed, will continue to apply. While the overall maximum you can receive is 150 per cent of the maximum rate of the Age Pension, your actual limit will depend on your age, how long you intend to receive payments, whether you are single or have a partner, the value of your home and how much Age Pension you receive. The formula is conservative to ensure participants do not borrow more than their home is worth.

How much will this cost you?
The current scheme interest rate of 5.25 per cent per annum will apply to existing and new loans. Participants have the flexibility to start or stop receiving payments as their personal circumstances change, and generally repay the loan once the asset (usually the family home) is sold or from their estate. They can repay earlier if they choose.

Will your PLS be taxed or means tested?
Income streams from the PLS are non-taxable and generally not means tested. However, if you save PLS payments, rather than spending them, the saved amount could be means tested. 

Who will use this scheme?
Currently, around 1.8 million age pensioners own their home, including 1.1 million maximum rate age pensioners and 700,000 part-rate age pensioners.

To date, uptake of the PLS has been minimal – largely because full age pensioners and self-funded retirees are excluded. From July, the Government expects up to 6000 retirees will take up a loan in the first three years.

Case study: Janet (single age pensioner)*

Janet is 70 and has a house valued at $500,000. She receives a full Age Pension of $926.20 per fortnight ($24,081 per year). Under the expanded Pension Loans Scheme, Janet is able to access some of the value in her home.

She chooses to receive additional funds of around $11,912 in the first year. Her income increases to $1384.35 per fortnight ($35,993 per year) – 150 per cent of the maximum rate of the Age Pension. The value of the loan funds increases over time in line with the indexation of the pension.

Janet continues to receive additional funds through the PLS for 20 years at an interest rate of 5.25 per cent. She passes away at age 90. Her family sells her house for $950,000. The PLS loan owed to the Government is around $600,000, which is paid from the sale of the house. About $350,000 remains in her estate. Over the 20 years, Janet received around $350,000 in additional income.

*Supplied by Australian Government, Department of Social Services

Are you a fan of the Pension Loans Scheme? Are you eligible for an Age Pension? Do you know your rights? The PensionChecker™ tool has all the information you need.

This article first appeared in the March 2019 Retirement Affordability Index.

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    Financial disclaimer: All content on 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 the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard 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.





    COMMENTS

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    MICK
    21st Apr 2019
    10:11am
    This is a shameful story Kaye and I am disappointed you are plugging Reverse Mortgages to the mentally challenged.
    Readers need to appreciate they need their house to live in and that they should be leaving some inheritance for those who follow.
    You are peddling the removal of common sense and basic decency Kaye and I stress to readers thinking about reverse mortgaged to consider they generally have no idea how long they are going to live and that its mean not to leave children a razoo. How many of us benefited from a leg up from our parents? Now its all about me! Its wrong and I for one will not have a bar of that thought process or that way of life.
    MD
    21st Apr 2019
    2:36pm
    Mick, dinosaurs died out eons ago, the result of natural causes or inability to adapt being irrelevant. It would seem to some readers that you've made your point just a tad more vociferously than the case demands perhaps?

    Whether or not you personally gained (or stand to) benefit from your forebears might seem equally irrelevant given that the former golden halcyon years are but mere memories of days gone bye. Times are a'changing - and this at rate that fewer folk will be in the (questionably) enviable position of "(leaving) children a razoo"...as you succinctly put it.

    Good luck to you and yours but let's keep an open mind to the fact that a good many folk may have little else but to accept what's on offer and their kids may well have to stand on their own feet. The Gubbermint safety net and thereby all that this entails was never meant for individuals to make provision for the children of recipients thereof.
    Rae
    22nd Apr 2019
    7:58am
    We are going through another colonisation right now. Natives never come out f this well. Privatisation and the buying of everything by waves of immigrants and multi national companies means if you can't leave anything to grandkids they may very well become peasants in the future.

    The idea that we need to give all to incoming strangers is a real issue. We actually don't. We just need to see the consequences and act to change that future.

    Adapting to a third world nation might be all right for some. We don't have to live in a world where 10% own everything at all.
    MD
    22nd Apr 2019
    3:45pm
    Agreed, we don't, but Rae whereas you've managed to cover a multitude of sins, you'll have to forgive me: what's your point exactly ?
    neil
    21st Apr 2019
    10:46am
    I didn't receive any leg up and have no intention of leaving anything to the kids; but an interest rate of 5.25% is crazy.

    Neil.
    MICK
    21st Apr 2019
    11:01am
    So was 17%.
    neil
    21st Apr 2019
    10:46am
    I didn't receive any leg up and have no intention of leaving anything to the kids; but an interest rate of 5.25% is crazy.

    Neil.
    Older lady
    21st Apr 2019
    11:56am
    If interest rate was lower. It might be an attractive option for someone with no kids. But the interest rate is far too high for a well secured and safe loan.
    Sinkers
    21st Apr 2019
    12:09pm
    The interest rate should mirror the deeming rate.But which Govement is fair.
    TREBOR
    21st Apr 2019
    7:13pm
    Like a reverse mortgage, wouldn't touch it with a barge pole...and a government usuring in that fashion is disgusting.

    Take home by stealth.

    Raise the Pension you sheep helping through the fence swine herders...
    tams
    22nd Apr 2019
    1:12pm
    Well done Kaye on the explanation provided ( although the $11,912 should read $12,040.6 and $17,958 should read $18,150.6)
    It's a pity some of your readers are so mind closed in their own environment and have little
    openness to the needs of others.
    We know there are around 35,000 retirees currently accessing Equity Release. What we need is greater education to those who have a need, so that they, and not the doomsayers, are better informed.

    The use of lump sum monies will always end up with greater debt (Homesafe and Household Capital). The new PLS and the standard reverse mortgage have an income stream, but only the private market reverse mortgage has a combination of lump sum/income stream/ and Line of Credit. It all depends upon the needs.

    One of the interesting parts of PLS is the availability to self funded retirees. This will catch the Government by surprise. Let's say a couple were earning $100,000 net and then retired with their home valued at $2.0m and $850,000 in super, Drawing down 5% ($42,500)mandatory, they could either take more from their super or up to $54,451 from the PLS.
    Now that is an interesting discussion to have with your financial planner. Use up super quicker than anticipated or use equity release on a appreciating asset.

    So why has Government decided to become a bank to older Australians?
    The background comes from the increased demand for Home Care Packages as the need to have more packages also requires consumers to have the capacity to contribute to the subsidised services eg Government reverse mortgage.
    What will come out is the Department providing advice to Government (either party) will suggest home care packages to be means tested (inc the family home) instead of income tested, and in line with residential aged care.
    For those who are unaware, the former Labor Government included the sold value of the family home in the assets for means testing.

    Mick - your comment about not leaving children a razoo is not correct and is without knowledge and practicality.

    Once again Kaye - well done
    tams
    22nd Apr 2019
    1:12pm
    Well done Kaye on the explanation provided ( although the $11,912 should read $12,040.6 and $17,958 should read $18,150.6)
    It's a pity some of your readers are so mind closed in their own environment and have little
    openness to the needs of others.
    We know there are around 35,000 retirees currently accessing Equity Release. What we need is greater education to those who have a need, so that they, and not the doomsayers, are better informed.

    The use of lump sum monies will always end up with greater debt (Homesafe and Household Capital). The new PLS and the standard reverse mortgage have an income stream, but only the private market reverse mortgage has a combination of lump sum/income stream/ and Line of Credit. It all depends upon the needs.

    One of the interesting parts of PLS is the availability to self funded retirees. This will catch the Government by surprise. Let's say a couple were earning $100,000 net and then retired with their home valued at $2.0m and $850,000 in super, Drawing down 5% ($42,500)mandatory, they could either take more from their super or up to $54,451 from the PLS.
    Now that is an interesting discussion to have with your financial planner. Use up super quicker than anticipated or use equity release on a appreciating asset.

    So why has Government decided to become a bank to older Australians?
    The background comes from the increased demand for Home Care Packages as the need to have more packages also requires consumers to have the capacity to contribute to the subsidised services eg Government reverse mortgage.
    What will come out is the Department providing advice to Government (either party) will suggest home care packages to be means tested (inc the family home) instead of income tested, and in line with residential aged care.
    For those who are unaware, the former Labor Government included the sold value of the family home in the assets for means testing.

    Mick - your comment about not leaving children a razoo is not correct and is without knowledge and practicality.

    Once again Kaye - well done


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