Pension Loan Scheme

Friday, January 31, 2020
Pension Loan Scheme

Written by Hudson Adviser Phillip McGann

Do you qualify as eligible for an Australian Age Pension – based on age and residency criteria whether you get a full, part or even NIL payment ? 

Do you own real estate in Australia ?

Do you require additional regular income over and above your current Age pension payment to live the lifestyle you are seeking in retirement?

If you have answered yes to all these questions (and a few others such as not being bankrupt and having adequate property insurance )  you may well be eligible for the government provided Pension Loans Scheme to fill in the gaps of your retirement income.

Even self funded retirees who are eligible for the age pension but qualify for a “NIL payment” can apply for the PLS.

The PLS is in effect a government backed reverse mortgage secured by your property. 

It has been around for decades but last year the government tweaked the eligibility rules and this opened up the scheme to potentially ten of thousands of Australian Retirees.

The interest rate charged is currently 4.5% and the payment cannot be accessed as a lump sum but only as additional payments over and above you age pension payments  (even if you payment is NIL)

The maximum amount you can access in payment is a combined total of 150% of the maximum age pension entitlement paid fortnightly. 

So if you currently receive the maximum age pension of $35,573 per annum or $1368.20 pf for you and your partner, you would be entitled to draw up another $694 pf for a combined total of $2,052 pf. 

This is 150% of the maximum age pension .

The maximum loan amount you can go up to is worked through via a formula that takes into account the age of the youngest recipient and the value of the property in question.

You can also limit the amount of the properties equity you wish to put up as collateral. 

The amount accrues interest and the debt increases.  No regular payments are required to be made but you can do so if you desire.  Ultimately the debt is payable when the property is sold – usually upon your death.

There is a maximum loan amount that is determined by a formula that takes into account your age and the value of the real estate put up as collateral.

The maximum loan amount can rise over time as you age and the value of the property rises.  And the PLS payments are not counted in the income test for the age pension.

The Pension Loan Scheme is not for everyone but it is likely to prove attractive to many as word of it spreads, as it provides options for additional income in retirement using your home as collateral for a (relatively) low interest rate.

 If you would like to discuss this and any other retirement income matters further with your adviser call 1800 80 296 to book in a call.

Source: https://www.humanservices.gov.au/individuals/services/centrelink/pension-loans-scheme/who-can-get-it

https://archive.budget.gov.au/2018-19/factsheets/preparing-finanacially.pdf

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