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Government to improve the Pension Loans Scheme

Government to improve the Pension Loans Scheme
By Tony Zhang
11 May 2021 — 2 minute read

The government has announced it will be increasing the flexibility and attractiveness of the Pension Loans Scheme (PLS) for senior Australians.

The PLS is a voluntary, reverse mortgage-type loan available to assist older Australians who wish to boost their retirement income by unlocking equity in their real estate assets. 

Through the PLS, people can receive additional, regular, fortnightly payments with the payments accruing as a debt secured against their Australian property.

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From 1 July 2022, the government will introduce a No Negative Equity Guarantee for PLS loans and allow people access to a capped advance payment in the form of a lump sum.

A No Negative Equity Guarantee will mean that borrowers under the PLS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued PLS debt exceeds their property value.

“This brings the PLS in line with private sector reverse mortgages. Immediate access to lump sums under the PLS eligible people will be able to receive a maximum lump-sum advance payment equal to 50 per cent of the maximum Age Pension,” the government said in its budget papers.

Based on current Age Pension rates, this is around $12,385 per year for singles, while couples combined could receive around $18,670, according to the government.

A maximum of two advances totalling up to the cap amount are permitted in a year, for those who do not want to take an advance in one instalment.

PLS and self-funded retirees

Under the existing PLS, self-funded retirees of Age Pension age who do not receive any Age Pension can get an income boost over a year worth 1.5 times a full rate Age Pension payment.

“This represents around $37,155 per year for singles and around $56,011 per year for couples. The increased flexibility from 1 July 2022 will allow a self-funded retiree to get a lump-sum payment worth up to 50 per cent of a full-rate Age Pension, representing around $12,385 per year for singles and around $18,670 for couples under the PLS each year,” the government said.

“This is on top of the other amounts they would receive under the PLS up to the maximum annual amount and means they will be able to bring forward one-third of their maximum PLS payments if they choose to do so.”

PLS and age pensioners

Under the existing PLS, those with a full-rate Age Pension can get an annual income boost worth 50 per cent of a full Age Pension, representing around $12,385 per year for singles and around $18,670 for couples. This is on top of receiving a full Age Pension.

The government stated the increased flexibility from 1 July 2022 will allow a full-rate age pensioner to access their entire annual PLS amount as a lump sum. This is on top of receiving a full-rate Age Pension.

Those with a part-rate Age Pension will also be able to access a lump sum worth 50 per cent of a full Age Pension. They will continue to be able to use the PLS to top-up their fortnightly pension through the PLS, such that their combined Age Pension plus PLS benefit (both lump sums and income stream) is up to 1.5 times a full-rate Age Pension payment.

Government to improve the Pension Loans Scheme
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Tony Zhang

Tony Zhang

Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.

Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.

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