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.
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.
1) The Interest Rate is both too high and predatory. It has already been reduced from 5%+, so… Even if the Government wanted to cover administrative costs, etc, for Pensioners, the rate should be in the 1.0% – 2.0% region, especially as it is secured against Residential Real Estate;
2) Governments of all stripes, in almost all States, over the years have tried to create external income streams for themselves, with Treasuries setting up [usually] overly complicated, overly restrictive, or overly costly schemes which never get taken up due to their own internal contradictions, ultimately fail, and/or need to be bailed out.
3) This scheme, while looking attractive, reminds me of the “Low Start” Government Home Loans [“HomeStart”?] of the late 80’s – early 1990’s, where the Department of Housing would offer “Concessional” Fixed Rate loans @ 13.5% – 14.5% [when rates were 17% -18%], together with a low deposit and low repayments, with repayments increasing every year by 5% – 8%.
The low repayments caused the compounding debt to balloon, and the annually increased repayments rapidly became unaffordable, because wages didn’t keep up with repayment jumps [the “Recession we had to have”].
In addition, State Governments sold off tranches of debt as bonds for investors, thereby recouping capital and offloading their liability to the private sector – very similar to all the synthetic bond creation and bond selling lunacy on Wall St then; and later, the artificially created CDO’s.
Naturally, Owners rapidly started defaulting, bonds started going negative, and those Borrowers who couldn’t refinance when interest rates dropped rapidly needed to be bailed out by Government – a self created disaster.
4) [b]IMO, this Federal Government [in particular] have tried to offload costs which are legitimate Government Public Administration costs [such as funding ASIC and the TPB] on to the Public or a particular Sector, and/or generate additional non tax revenue off the public.
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It is overly clever, manipulative, and abusive of the public; and will end in disaster. Especially when reducing Owner’s Equity, and Pensioners no less, the interest rates need to be very competitive and very fair.
Indeed ! The Gov rate of borrowing is close to ZERO. The risk of the lend is ZERO. So the rate of interest is actually a direct transfer of funds from the people who can least afford it to the Gov. Predatory pricing at its most egregious.
Until the Govt reduces the 4.5% interest rate to something more realistic (equivalent to typical home loan rates) the uptake will continue to be low. It is a disgrace that the Govt is making a profit from the people who can least afford it.
It is an interesting concept but yes the interest rate of 4.5% in the current fiscal environment is unrealistic in my opinion.