Government to revamp Pension Loans Scheme

The Morrison government has announced that it will reduce the compound interest rate on the Pension Loans Scheme mortgages from 4.50 per cent to 3.95 per cent per annum from 1 January 2022.

The scheme allows older Australians to get a voluntary non-taxable fortnightly loan from the government up to a maximum value of 150 per cent of the rate of the age pension. 

According to the Minister for Families and Social Services Anne Ruston, the rate reduction would help reduce borrowing costs for participants and allow them to use the scheme for longer.

She suggested the interest rate change would also help give older Australians more confidence to tap into home equity to enhance their retirement living standards.

“The lower interest rate, together with the upcoming enhancements, will make the scheme an attractive option for retirees,” Minister Ruston said.

As of next year, the scheme will also be rebranded to become the Home Equity Access Scheme.

To be eligible for the Home Equity Access Scheme, retirees must have reached age pension age, own real estate in Australia and meet residency and certain other requirements, but do not need to be receiving a pension payment. 

“The new name also seeks to make sure that all retirees, not just those on a pension, know they can benefit from the scheme if it suits their circumstances," Ms Ruston added.
 
“The Morrison government is committed to finding new and innovative ways to support older Australians in their retirement,” the Minister for Families and Social Services continued.
 
“Home ownership is a bedrock of our society with Australians working hard to accumulate wealth in the form of real estate equity...

“The Home Equity Access Scheme allows Australians over the age pension age – whether they are pensioners or self-funded retirees – to unlock this equity using a trusted government product to boost their disposable income in retirement."
 
The changes builds on a package of proposed improvements from 1 July 2022, introduced into Parliament earlier in December, to introduce a No Negative Equity Guarantee and allow users of the scheme to access capped lump sum advance payments. 

Move welcomed

Pension Boost – a company that specialises in the Centrelink program – has welcomed the changes.

The commercial venture had previously raised a petition supported by around 1,700 people to have the PLS rate reduced.

Paul Rogan, founder and CEO of Pension Boost, commented: “Whilst the PLS rate has been improved, the reduction reflects changes that should have been made when the RBA made COVID-19 emergency reductions to the benchmark interest rate during 2020.

"Seniors participating or considering participating in the scheme deserve a fairer and more transparent rate-setting mechanism so that retirees can have greater confidence and trust in the scheme and this remains outstanding,” he said.

According to Pension Boost, a "more equitable" rate-setting mechanism would remove the last impediment to making the scheme a more attractive mortgage facility for senior consumers.

“Based on our discussions with clients, the fact the scheme is provided by the government provides a level of comfort to seniors when comparing their reverse mortgage options,” said Mr Rogan.

He concluded: “The government’s support for the scheme as a way for seniors who want to stay in their homes by making use of their household equity has been evidenced by the actions announced in the 2021 federal budget, which will enhance the scheme’s appeal to seniors.”

[Related: Should retirees be encouraged to draw down on their home equity?]