Changes to the Pension Loan Scheme could help more elderly Aussies boost their finances

Remy Taylor

Tuesday 28 May 2019

In a bid to encourage older Aussies to live at home longer, the Federal Government has announced it will launch a revamped Pension Loan Scheme, which accepts the value of your home as security against a loan.

Starting on July 1st, the scheme will offer retirees who meet the conditions a regular cash flow on top of their pension to help pay for things like support and care services delivered at home.

It can be difficult as a pensioner to access things like a personal loan or credit cards so an initiative like this could help ease the financial pressure while putting your feet up in retirement.

This comes after the government announced in last year’s Federal Budget that it would widen the scheme to allow for an even broader range of pensioners to join.

Previously, meeting conditions like a payment rate above $0 for either the income or assets test were required, meaning some people, including those on a part-pension, missed out.

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According to Mozo Property Expert, Steve Jovcevski, this initiative could be the financial relief needed for some retired Aussies with not many other assets other than their home.

“For elderly Australian’s who’ve put a majority of their investments towards property, times can get pretty tough when scraping up enough cash to spend on aged-care essentials like home support services,” he said.

“It can be a real challenge to get loan approval once you’ve retired, so with a fresh scheme like this, it’s likely they’ll be a number of seniors taking up the offer and able to not only keep their property but have the freedom to stay at home longer.”

If you’re a pensioner or know of someone looking for a bit of extra financial help who might be interested in taking up this new initiative, then here are the ins and outs of the Pension Loan Scheme:

What is the scheme?

The Pension Loan Scheme is a reverse mortgage with a competitive 5.25% p.a. interest rate, meaning pensioners and part-pensioners from the age of  65 years and 6 months can convert the equity (the value of the property you own) as security against a loan, with the loan cash then used as a form of income.

To be used as security, the property doesn't have to be owned outright, however, there must be enough equity to obtain the loan.

Those who apply and meet the criteria for the scheme could receive up to 1.5 times the maximum rate of the age pension each fortnight.

For example, the maximum single pension rate is $926.20 per fortnight, therefore 1.5 times that rate is $1389.30. As a full pensioner, you can choose to receive fortnightly loan payments up to $463.10, the difference between $1,389.30 and $926.20. However, as soon as the maximum loan limit is reached your loan payments cease.  

Keep in mind, you can choose to repay the loan in full or part at any time, so long as it is repaid when the property is sold or the last surviving borrower dies.

Who is eligible?

In order to join the scheme, you or your partner must meet the following conditions:

  • Be an Australian at least pension age (currently 65 years and 6 months)
  • For the first time the scheme will also include maximum rate pensioners and self-funded retirees.
  • Meet a residency test and own a family home or investment property (or enough equity) that can act as security against the loan
  • Have suitable insurance to cover the property
  • Not be bankrupt or subject to an insolvency agreement under the Bankruptcy Act 1966.

How to sign up:

From 1 July 2019, you can apply for the Pension Loans Scheme online with a Centrelink online account through myGov.

Are there other options?

Although the Pension Loan Scheme is a less expensive option compared to other reverse mortgages or selling your home for some extra coin and risking the loss of pension, it does pay to seek financial or legal advice before making any decisions about your property.

If you or someone you know is a retiree looking to take some pressure off their finances then check out our pensioner loans page for a range of options.

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