Financial Elder Abuse

Pension Loan Scheme for Retirees

Peter Cramer

I thought it might be useful to let families know of the possible use of the expanded pension loan scheme (The Scheme) that is effective as of 1/7/19.

It is a ‘reverse mortgage’ arrangement provided by the Government.

It is available for people of age pension age who have property assets and who wish or need greater access to cashflow than their current investments or pension supplies.  It is potentially suitable for aged persons who are asset rich but income poor.

For example, a couple may own their house and another property/farm etc that they want to retain but are not getting enough income to cover their expenses.  Perhaps they have significant medical or living costs and they don’t want to sell their property to find the cash needed?

They can source an income stream from the government which can be as much as 150% of the current age pension entitlement.  The Scheme works as an income stream payment – not a lump sum.  The payments are a loan that accumulates and must be repaid with interest at a future date.

The following example illustrates one possibility:

Fred owns his house and a farm block.  There is a small amount of debt on the property.  Fred is 67 – but because of his assets, misses out on the Age Pension.  He hasn’t enough cashflow to meet his living costs and has larger medical and other bills mounting.  He hates the idea of selling his home or farm block.

The maximum age pension for a single person is approx. $926 per fortnight with all the supplements.  So he is entitled to apply for a maximum fortnightly income stream of $1,389 (150% of $926).  Fred can select any amount up to the maximum.   He must own a property with adequate insurance on it.

The Government takes the relevant security/charge over the offered property within certain limits.  The loan limit is based on Fred’s age, level of existing debt and the property value. Fred can now receive an addition to his cash flow of up to $1,389 per f/n and meet his needs going forward.

Fred can pay off the loan whenever he chooses.  The loan must be repaid if the property is sold, or if Fred dies – within 14 weeks after death.  If Fred has family, they may choose to pay off the loan and not be forced to sell the property within the 14 weeks.

For some people who are asset rich and income poor – or who have parents that have costs that are not being met from their income – perhaps this might be an option?  It might help in meeting aged care costs where the family does not wish to sell the home.

Persons considering this must seek appropriate Licensed advice – the Scheme is a loan so the advisor must have a credit licence to advise.

This is a snapshot of the Scheme.   This is provided for your general information.  We do not make any recommendation in relation to it.