Pension Loan Scheme replaced by the
Home Equity Access Scheme

This Scheme allows senior Australians to access the equity in their real property by borrowing from the government, against the value of their property to supplement their retirement income. And they don’t have to be receiving income support from the government to qualify. But they do need to have appropriate and adequate insurance covering their secured real asset(s).

Since 1 January 2022, the Government’s Pension Loan Scheme has been rebranded as the ‘Home Equity Access Scheme’

The feature of this Scheme is that borrowers can remain living in their family home without having to sell their property and they do not have to repay the loan during its term. Retaining their home may carry Centrelink concessions such as main residence exemption and may have sentimental and estate planning advantages.

This Scheme provides a cashflow solution for many cash strapped retirees. However, this does mean the loan amount will increase over time and will need to be repaid when the property secured by the loan is sold or from the person’s estate after they have passed away.

Since 1 January 2022, the interest rate on this loan has dropped from 4.5% to 3.95% and is compounded on the outstanding loan balance each fortnight.

Proposed changes to the Scheme from 1 July 2022
A Bill has been introduced into Parliament (which hasn’t yet passed), that proposes to increase the flexibility of this
Scheme with the following changes:
No negative equity guarantee
The introduction of a no negative equity guarantee will mean that those participating in the Scheme with an outstanding loan balance on or after 1 July 2022 will not have to repay more than the equity they have in the property used to secure the loan. This will protect the borrower in case the value of their property falls. The guarantee will extend to both existing and new Scheme participants.
Pension Loans Scheme advance payments
Currently, the Scheme does not allow access to lump sums, and only allows for fortnightly amounts of the combined pension and loan payments of up to 1.5 times the maximum pension rate.
It is proposed that from 1 July 2022, borrowers will be able to access lump sum advance payments up to 50% of the maximum annual rate of Age Pension either as a single lump sum or two instalments within a year. This will provide flexibility for borrowers, which may be used where a large one-off expenditure is required. 

Case study: Mandy is 70-years old and qualifies for the age pension, but due to her level of assets is not entitled to receive an age pension. Despite not receiving a pension, as she has a securable property, being her home with sufficient equity and adequate and sufficient insurance on it, she is able to borrow under the Home Equity Access Scheme. 

■ The maximum single Age pension is currently $967.50 per fortnight ($25,155 per year – as at 1 January 2022). 

■ Mandy accesses the Scheme, using her property as security, and can nominate to receive a loan of up to 150% of the Age pension limit, being $1,451.25 per fortnight ($37,732 per annum). 

■ Alternatively, if she wants to access the loan as a lump sum, the maximum advance available to her is: $967.50 x 50% x 26 (fortnights) = $12,577.50. 

Under the proposal, she is able to access up to two advances in any 26 fortnight period, however the amount available as a second advance will be reduced by the value of the first advance. This ensures no more than the capped 50% amount can be taken as advance payments. There is age-based loan-to-value ratios which will continue to apply when determining the maximum advance amount available to a participant. This means the actual advance a borrower is eligible to receive may be less than the maximum allowable advance described above.

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