What is the Pension Loan Scheme and how does it work?
July 16, 2019
The Pension Loans Scheme (PLS) is a loan facility managed by the Commonwealth Government (Centrelink) that can provide eligible individuals or couples with regular fortnightly income payments until their loan limit is reached. The loan needs to be secured against property owned by the recipients. Repayments can be made at any time but generally take place upon the sale of the property or death of the recipient(s).
The scheme has been in place since 1985, however uptake has been relatively poor throughout this period, both as a consequence of a lack of public knowledge about the PLS and because it was very difficult to qualify. It was limited to individuals of pension age who qualified for a pension under either the income or assets test, but were not disqualified under both tests.
In the 2018 May Federal Budget, the Government announced a welcome expansion of the current PLS from 1 July 2019. Some key points about the new Pension Loan Scheme include:
Eligibility will now extend to all Australians of Age pension age, including those currently receiving the maximum rate Age pension.
The maximum PLS income stream available will effectively be the difference between one’s current Age pension payment, if any, and 150% of the Age Pension rate.
You must have real property to provide as security against the loan and only a fortnightly income stream is available - no lump sums.
The maximum total loan available is largely a function of your age and the value of your property - less any nominated amount you wish to exclude from the calculation.
The current interest rate applying to these loans is 5.25%, and this has remained static since 1997 - but there is no guarantee this will remain the case.
It provides more flexibility in terms of allowing individuals who are classically asset rich and income constrained, something that applies to large proportion of the aged population, to improve their everyday living standards.
Changes to the Scheme are designed to increase its uptake, especially as the maximum fortnightly loan payment has increased. Around 6,000 eligible pensioners are expected to join the Scheme over the next four years. Many people will be much more comfortable dealing with a government entity than with a private lender. Nevertheless, we strongly recommend that individuals seek financial advice before entering these arrangements as they are long-term in nature, and can be complex.
If you or anyone you know requires advice, please call our office today to arrange an appointment on (07) 5574 0667.
Wahlstrom Financial Services Pty Ltd, ABN 43 078 015 988, is a Corporate Authorised Representative of Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 an Australian Financial Services Licensee number 244252. Millennium3 Financial Services Pty Ltd and Wahlstrom Financial Services Pty Ltd are not responsible for the advice given regarding lending. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement. The views and opinions expressed within this letter are those of the author and do not necessarily reflect those of Millennium3 Financial Services Pty Ltd.