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The Pension Loan Scheme – too little too late?


On 1st July the Federal Government will launch the revamped Pension Loan Scheme. It is a reverse mortgage paid only as a fortnightly income stream, to assist older Australians to meet whatever needs they may have, Paul Dwyer writes.

Paul Dwyer

Previously it was only available to retirees who lost age pension as a result of the asset or income assessment, but not both. The maximum amount available was the difference between the full pension and the actual mount received.

But the real reason the revised version is being released actually relates to aged care.

The Productivity Commission report into Caring for Older Australians recommended an equity release product funded or supported by Federal Government, preferably at a lower interest rate than the commercial market.

Aged care advocates and groups strongly endorsed the concept with direct representation to the then Treasurer Scott Morrison. It was subsequently included in the 2018 Budget.

Home Care packages are substantially subsidised by the Federal Government, which receives only a 3.7 per cent user contribution from the recipients of care.

The advocates have seen the significant growth in the need for Home Care packages, with another 50 per cent needed over the next five years.

The Roadmap for aged care is still a “work in progress” but one of the interesting future changes will be the inclusion of the family home in an assessment capacity to contribute to home care.

Recipients are often short in savings and many of the 70 per cent of home owners find it difficult to contribute some monies towards their subsidised care. The Government’s reverse mortgage product opens the doors for borrowings secured by the family home or other real estate.

Home Care providers would not be able to discuss the PLS with their clients as they are not licensed to do so.

But for the majority of retirees, the purpose of the funds will not be the contribution to the cost of home care. As we know from the reverse mortgage industry, 96 per cent of borrowers have a lump sum or Line of Credit requirement, which is not available in the Pension Loan Scheme.

There will be many 66-80 year olds using their equity well before the time arrives to receive home care. For fit and enthusiastic couples and singles, accessing up to $18,000 per year ($12,000 for singles) will make a significant difference to the lifestyle.

The real lack of understanding is highlighted by including self funded retirees as approved participants in the scheme. A couple with a $3 million home and $1 million in super can access $54,000 per year from the appreciating value of the family home and only accessing the minimum level from the super fund.

Yes, it was designed as a tool to fund home care contributions, but clearly by that time of necessity, the amount of allowable borrowings may well be exhausted.

Paul Dwyer is an adviser at Reverse Mortgage Finance Solutions and Aged Care Finance Solutions.



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2 Responses to The Pension Loan Scheme – too little too late?

  1. Paul Versteege May 9, 2019 at 1:03 pm #

    The lag between the commencement of aged care reforms and the introduction of the extended Pension Loans Scheme is five years. To suggest, as Paul Dwyer does, that there is a link between these two initiatives is incorrect. The 2014 aged care reforms specifically ruled out the use of home equity to fund home care and the suggestion that the family home will be included in the aged care means testing is based on pure speculation.

    Paul Versteege
    Policy Manager
    Combined Pensioners and Superannuants Assoc

  2. John Ball August 4, 2019 at 9:36 am #

    I don’t wish to be too cynical, but declining government coffers and the temptation will be too good for politicians to ignore in a decade or so.

    Better to devise a society that is able to care for most of its old at home, as we once used to – and as most Asian societies largely remain.

    The onus is always on the family. I’s tough but it has an extraordinarily high success rate!.

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