Want to top up your Age Pension?
July 10, 2019
The Pensions Loans Scheme (PLS) is a Government program which can help eligible Australians leverage the value of their home to top up their Age Pension. It works by allowing them to borrow money against their property – similar to a reverse mortgage arrangement.
The Scheme has been around for a while, but new rules which came into effect from 1 July 2019 mean more people are eligible for the Scheme and the amount of money you can get has increased.
How will it work?
This borrowing creates a debt against the chosen property that is repaid to the Government, generally when you sell the property or the last member of a couple passes away.
How much you can borrow is limited by the value of the property used as security, the amount you wish to pass on to beneficiaries in your will, and your age.
The interest rate charged is set by the Government (currently at an annual rate of 5.25 per cent), which could be lower than the rates for traditional reverse mortgages. This compounds fortnightly on the outstanding balance. The interest and the loan do not have to be repaid until the house is sold, but you can repay earlier if you wish. The longer you take to repay the loan, the more interest you pay.
What can you get?
To access the Pension Loans Scheme you must qualify for an eligible pension. You can get up to 1.5 times the maximum payment rate of your eligible pension and the money is paid to you from Centrelink in the form of a fortnightly pension. You can’t withdraw a lump sum of money.
The Pension Loans Scheme can provide a convenient way to increase your income without having to sell your assets immediately. That said, it comes with a range of considerations, including managing your desired estate planning outcomes.
Who is eligible?
The Scheme allows you to access a loan from the Australian government. To qualify you must meet all of the following:
• you qualify for or get an eligible payment
• you own real estate in Australia with enough equity to secure the loan
• you have adequate insurance covering the secured real estate
• you’re not bankrupt or subject to a personal insolvency agreement
• you or your partner are Age Pension age or older.
From 1 July 2019 you can apply for the Pension Loans Scheme online with a Centrelink online account through myGov.
How much can you get?
The total loan you can get depends on the:
• equity you have in the property you offer as security
• equity you want to keep in your property, and
• age of you or your partner, whoever is younger
As a general rule, you cannot borrow more than 1.5 times the maximum fortnightly pension rate.
Example
John is age 70, single and retired. He owns his own home in rural Victoria with a small mortgage. John receives a part Age Pension of $400 per fortnight (including pension and supplements and the current the maximum rate is $926.20 per fortnight).
John requires an additional $200 per fortnight to meet his cash flow needs.
From 1 July 2019 under the Pension Loan Scheme John can receive (if eligible) an increase of up to $989.30* per fortnight by borrowing against his property.
* 150% of the maximum pension, or $1,389.30, less Johns currently fortnightly pension payment of $400