The Pension Loan Scheme is just what the name denotes; a loan arrangement offered by the Australia government available to those who meets the age pension age test. The Pension Loan Scheme provides Australian pensioners short-term support in the form of a loan that is repaid in regular fortnightly payments.
The loan is not available to everyone; in fact you have to meet the eligibility requirements.
You may be able to apply for the Pension Loan Scheme if:
- You or your partner are of pension age
- You own real estate in Australia which can be used as collateral for the loan
- You or your partner receives a rate of payment that is less than the maximum amount or nothing at all due to either the income test or assets, but not both
- You meet the age pension residence rules
If you are eligible to receive the pension loan you are responsible for paying any costs associated with setting up a loan under the Pension Loan Scheme, some of these costs can include legal fees. If you are granted the loan you will receive a letter once the loan has commenced advising you of the costs you must pay. These can be paid straight away or can be added to your outstanding loan balance.
The current compound interest rate charged on an outstanding loan balance is 5.25%. Interest is added to the outstanding balance each fortnight until the loan is fully repaid, the longer you take to repay the loan, the more interest you pay.
The outstanding loan balance is made up of the amount you borrow, plus interest and any associated costs; the repayments you make are not added.
You are able to repay the borrowed loan in full at any time. If you want to sell the property that you used as security for the loan you will need to speak with the Government first about that arrangement. You may be given the option to either transfer the loan to another property or repay the loan on the date of settlement.
Upon your death, if there is an outstanding loan, your estate or your surviving partner may have to make repayments on your behalf.
The amount you are eligible to receive will depend on the equity you have in the property you offer as security, equity you want to keep in your property and the age of you or your partner.
Lastly, loan payments are not taxable.
As you can see, obtaining a loan through the Loan Pension Scheme can be quite costly for you in the long run, furthermore, it could potentially leave your loved ones with a debt to pay in you absence.
If you are considering applying for the Pension Loan Scheme, it may in your best interest to speak with your financial planner first to see if it’s the best move for you financially. There may be other possible options for you and you want to ensure that you don’t run into any difficulties when it comes to repaying the loan.
LifeTime Financial Group are specialist (holding appropriate accreditations) advisors who are ideally positioned to assist you in selecting and then managing your retirement funds.
Would you like to discuss your personal position further with one of our highly qualified financial planners? Why not call us today on 03 9596-7733.
There is no cost or obligation for our initial conversation/meeting.
Written by Adam Watts of LifeTime Financial Group. A leading privately owned Melbourne Financial Planning practice.