Pensions Loan Scheme for older Australians who are asset-rich but income-poor
The Pensions Loan Scheme (PLS) is broadly available to retirees of Age Pension age who own Australian property and meet pension eligibility requirements. The PLS is a scheme that lets older Australians get a voluntary non-taxable fortnightly loan from the Australian Government, which can be used to supplement your retirement income.
Important changes to the scheme that took effect from 1 July 2019 mean that more people will be eligible to apply and the amount you can apply for has increased.
The PLS operates like a reverse mortgage. It suits older Australians who are asset-rich but income-poor. Unlike a conventional reverse mortgage, pensioners cannot borrow a lump sum; instead, it is paid on a fortnightly basis.
Under the PLS, recipients can supplement their fortnightly pension up to a maximum of 15o percent of the fortnightly Age Pensions rate, including pension and energy supplements and any rental assistance. For example, if you are a couple and receive a combined fortnightly pension of $1,407, you would be able to receive a combined additional payment of up to $703 per fortnight as PLS payment. The PLS will continue to be payable until the recipient reaches their maximum loan amount.
The maximum loan depends upon your age when you apply for a loan, the value of your property, and how much equity you would like to retain in your home.
The maximum loan amount is broadly calculated by applying a factor based on the age of the youngest owner of the property, multiplied by the value of the property, divided by $10,000.
If you wish to retain greater equity in the property to be granted to your estate on your death, then the portion you wish to retain would not be factored into the calculation.
The maximum loan is not fixed and can be varied as circumstances change. Existing PLS recipients are eligible to extend their loans up to 150 percent of the maximum age pension rate, subject to equity and age restrictions.
Interest rates for loans, compounding fortnightly
Interest accrues against the debt until the loan is repaid. Prior to 1 January 2020 the interest rate was 5.25% per annum, however the Government now charge an annual interest rate of 4.5% that compounds fortnightly on the outstanding loan balance.
The outstanding loan balance is the amount Centrelink loaned you plus costs and interest accrued, less repayments you’ve made.
Centrelink will add interest to the outstanding loan balance each fortnight until you repay the loan in full. The longer you take to repay the loan, the more interest you pay.
You are responsible for paying all costs associated with the loan. You also need to consider the impact of the compounding effects of the interest costs over time.
Contact Centrelink to determine the next steps or visit the Centrelink Human Services website on PLS here.
Example of the loan balance
George gets his first fortnightly loan payment of $750 from the Pension Loans Scheme. Interest accrues straight away. Centrelink charge interest on this again every 14 days.
At the end of the first fortnight, George’s loan balance is $751.29. George then gets another $750 loan payment. Centrelink charge interest on the total loan balance, including interest charged on previous loan payments.
At the end of the second fortnight, George’s outstanding loan balance is a total of his:
- first fortnightly payment plus interest, which totals $751.29
- second fortnightly payment, which is $750
- interest on the balance of $1,501.29, which is $2.59
That makes his new outstanding loan balance $1,503.88.
At the end of the third fortnight, George gets another $750 loan payment. Centrelink charge interest on his outstanding loan balance. This means George’s outstanding loan balance is now a total of his:
- outstanding loan balance of $1,503.88 plus the third payment of $750, which totals $2,253.88
- interest on the loan balance, which is $3.90.
That makes his new outstanding loan balance $2,257.78.
The interest will continue to accrue in this way each fortnight until George pays off his debt. This applies even after he reaches his maximum loan amount and stops getting payments.
This means that George’s loan will increase every fortnight. The longer he takes to pay off the loan, the more he’ll need to pay back.
The tables show how compound interest accrues on a loan over 5, 10 and 15 years for different loan amounts based on the current interest rate. The tables assume the fortnightly loan amount, interest rate and property values remain the same.
We recommend that you seek independent financial advice before making any financial decisions.
Compound interest if you get a fortnightly loan amount of $50
Compound interest if you get a fortnightly loan amount of $750
Compound interest if you get a fortnightly loan amount of $1,350
Make an informed decision
There are things you need to think about before applying for the Pension Loans Scheme. These include:
- your current and future financial situation
- the impact of compound interest on the loan
- the repayment of the loan
Before applying, we recommend you seek independent legal or financial advice.
Centrelink also have tools and information to help you learn more via their Manage Your Money page
For more information visit: www.humanservices.gov.au.
How to apply
Check if you’re eligible before you start your claim. You can claim a top-up of your pension as a loan if you own real estate in Australia.
It’s suggested that the easiest way to apply is online.
To apply online, you need a myGov account linked to Centrelink. If you don’t have a myGov account or a Centrelink online account you’ll need to set them up.
If you’re under Age Pension age, to apply for PLS you’ll need to either:
- already be on an eligible pension
- lodge a claim for an eligible pension
For more information on how to apply, visit the Pension Loans Scheme – How to apply webpage.
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