6th Dec 2018
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Government turns banker to top up retirement incomes
Author: Olga Galacho
Retirement income top up extended

In this year’s May Budget, the Federal Government threw retirees a lifeline in the form of an expanded Pension Loans Scheme (PLS) from July 2019.

The scheme will be widened to allow all retirees to borrow money from the Government, using their house as equity through a reverse mortgage, regardless of the level of Age Pension they receive or even if they are self-funded retirees.

In the YourLifeChoices 2018 Retirement Matters Survey, we asked members if they would take up a Pension Loans Scheme offer and 13 per cent said they would.

However, the fact that 87 per cent of the more than 5000 respondents rejected the notion suggests there is still some healthy scepticism about the Government acting as a quasi-bank.

The scheme works quite differently to a standard loan attached to a mortgaged house and is designed so that you never end up owing more than the value of your property.

The funds drawn down are limited to a proportion of the Age Pension and are paid in instalments each fortnight.

Currently, only part-age pensioners or people who do not receive any income support pension because of the income or assets test are able to borrow instalments from the Government under the scheme.

The fortnightly payments are a top up to the level of a full Age Pension and any combined payments cannot be greater than a full Age Pension. If you already receive the maximum Age Pension, you are not eligible to apply for the PLS.

Known as a reverse equity mortgage, the loan is non-taxable and the term of the loan can be for a short time or an indefinite period. In order to borrow, a pensioner must use their home or other property as security.

A pensioner cannot borrow more than the worth of their house. 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. However, if a recipient’s circumstances change, they may have to pay the loan back sooner.

The borrowings cannot be a lump sum as funds must be paid with the fortnightly pension. Any costs associated with setting up the loan must be paid by the applicant. An interest rate of 5.25 per cent will be charged. 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.

To be eligible for a PLS loan, you need to meet the following criteria:

  • receive less than the maximum rate of income support pension or no pension, but be notionally assessed under either the income or assets tests at a rate greater than nil
  • be of Age Pension age
  • if you are part of a couple, your partner must receive a rate of payment that is less than the maximum amount or nothing due to either the income or assets test, but not both
  • have sufficient property in Australia that you can offer as security for the loan.

For more information about whether you may be eligible for the expanded PLS from July next year, visit the Department of Human Services.

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?

To make the most of your money in retirement, first you need to know the rules. The RetirePlanner™ tool has all the information you need.

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    COMMENTS

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    1984
    6th Dec 2018
    10:35am
    Bad Idea. It will only cause further hardship down the line as any monies borrowed are subject to interest which compounds year after year.
    Most major banks are doing away with reverse mortgages including the CBA.
    If you have assets that reduce your pension & aren't returning some form of income then it's time to dispose of some assets or turn them into an income.
    https://www.abc.net.au/news/2018-12-05/reverse-mortgage-warning-as-daughter-discovers-mothers-loans/10563568
    Ted Wards
    6th Dec 2018
    11:17am
    Sounds like very sound advice 1984
    Cowboy Jim
    6th Dec 2018
    11:56am
    Would not touch it; also you might find that your post code is not right for the reverse mortgage. They would not want to be swamped with properties they cannot dispose of rather quickly in case of defaulting borrowers.
    johnp
    6th Dec 2018
    12:23pm
    Agree 100% with 1984 re bad idea. The article conveniently leaves out the issue of aged care costs needed later on and maybe being able to afford higher quality aged care. Also ignore lothario's inane comments.
    Sundays
    6th Dec 2018
    1:39pm
    On the 7.30 Report last night there were two cases where the people took out reverse mortgages without fully understanding them. Now with compound interest they have huge debts.
    Lothario
    6th Dec 2018
    3:40pm
    Sundays - and I suppose its the banks fault that they took out these mortgages

    Do they want an RC now so they can get their money back ?
    Lothario
    6th Dec 2018
    11:19am
    When Shorten gets in and introduces his franking credits policy, many will have no choice but to rely on this scheme
    Paddington
    6th Dec 2018
    11:35am
    Lothario.... Who are you? You are electioneering at every turn!

    When you only have your home and nothing else then you do not fall for these schemes. Just borrow the small amount that Centrelink offers if you are desperate for a new fridge or washing machine. We know people who have done that and that is okay because you pay it back and it is finished.

    Changing to a cheaper home if possible is better than borrowing against your home as well although buying another home in today’s market calls for care and consideration.
    Lookfar
    6th Dec 2018
    11:46am
    Lothario, (s) do you think you are making some political point by twisting the discussion to some other grievance? - all you are doing is showing your absolutely rigid subservience to the powers that be, the powers that are destroying our world, - not so slowly anymore, - Shame on you, and all who sail within.
    Paddington
    6th Dec 2018
    3:34pm
    Bravo Lookfar!
    Lothario
    6th Dec 2018
    4:02pm
    Don't know what you 2 are on about.

    Just saying many SFR's will be worse off than pensioners with Shorten's policy.

    Only way they can make up the deficit is by reverse mortgaging their house

    Its a fact
    MICK
    7th Dec 2018
    10:08am
    So the Morrison government is offering reverse mortgage loans and the prize cretin Lothario is blaming Labor? That's a laugh and a half and has been recognised by genuine posters above.

    YLC - please remove Lothario who is a government troll. Your website needs facts and honesty and this poster is a Donald Trump poster: full of dishonesty and lies. Not needed!!

    PLEASE BLOCK THIS POSTER.
    Old Man
    6th Dec 2018
    12:27pm
    It seems like a good idea for those who wish to use the reverse mortgage system but only because it's cheaper. I note that 87% of those polled rejected the notion but it makes me wonder what the percentage of people would reject reverse mortgages regardless of who is providing them. I also note that as of next year none of the major banks will be offering reverse mortgages so which lenders will be offering them. If a reverse mortgage is required and the major banks are not in the market, I think a government backed advance would be more acceptable.
    MICK
    7th Dec 2018
    10:10am
    So you are now also promoting the government in the lead up to the election? What a surprise.
    Shame on you for advocating that any reverse mortgage is a good thing. It isn't and those who play this card will be sorry. Many have already realised too late that they have been conned but cannot get out once the deal is done.

    For the record all banks have been moving away from reverse mortgages. Not because they are unprofitable.
    dreamer
    6th Dec 2018
    1:51pm
    Personally I would down size the last thing you want is a debt or another one at your later years and this government would be the last people I would trust


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