Cash-strapped Age Pensioners may be able to borrow against their family home under changes to the Pension Loan Scheme (PLS) announced in last year’s federal budget and which take effect from 1 July 2019.
The scope of the PLS, which allows older Australians to borrow money from the federal government against their homes to supplement their income while in retirement, has been expanded, enabling more retirees to access it.
National Seniors supported reforms to the PLS when it was announced in the Budget and made a submission to the parliamentary inquiry set up to debate the legislation. We welcomed it as good news for retirees and pensioners given that 75% of pensioners are home owners and the initiative could reduce pension poverty, especially for those who are asset rich but cash poor.
Each fortnight a pensioner is paid an agreed amount, which increases the amount that must be repaid when the house is sold (usually from the estate). Payments continue until the balance of the loan reaches the maximum loan available. Currently, there is a fixed interest rate for PLS loans of 5.25% p.a. compound interest on the outstanding loan balance.
To qualify you must meet all of the following:
- own real estate in Australia with enough equity to secure the loan
- have adequate insurance covering the secured real estate
- qualify for or get an eligible payment
- not bankrupt or subject to a personal insolvency agreement
- you or your partner are Age Pension age or older.
Retirees can choose how much they want to borrow (up to 150 % of the full pension).
For example, if a single part pensioner receives a pension payment of $400 per fortnight but wants to receive the maximum amount of $1,389.30 then the amount added to the loan each fortnight would be $989.30.
However, they may only want to receive a total of $1,000 which would mean the amount added to the loan each fortnight is $600. This is on top of any income that they receive from super or investments. It is important to also note that PLS payments are not counted towards the Age Pension income test.
Anyone wanting to apply for the scheme should contact Centrelink - applicants have to talk with a Financial Information Service officer before they can apply.
It is recommended you seek independent financial or legal advice before making any decisions about the Pension Loans Scheme or any other scheme to unlock equity from the family home, such as a reverse mortgage.