12 May 2021
The Federal Budget 2021/2022 has introduced the option for pensioners to access lump sum payments when they take out a loan through the Pension Loan Scheme, instead of as an increase to their fortnightly pension payment.
The Pension Loan Scheme allows older Australians to take out a loan to help meet their cost of living using their property as security for the loan with a current annual interest rate of 4.5 percent.
Currently, these loan payments can only be accessed as an increased fortnightly pension payment of up to 50 percent of the maximum pension entitlement. Now, pensioners will be able to take this additional amount as a lump sum instead of a pension payment.
This has the potential to benefit older Australians significantly in circumstances such as covering significant medical expenses, property renovations or a replacement car. The lump sum can be paid in a maximum of two instalments in a year for those who do not want to take the advance in one instalment.
The Pension Loan Scheme lump sum option would allow elder Australians to access up to $12,385 for a single person or $18,670 for a couple in one year.
The Government has also introduced a ‘No Negative Equity Guarantee’ for Pension Loan Scheme loans from 1 July 2022. This guarantee means that borrowers or their estate, will not owe more than the market value of the property that secures the loan should the accrued Pension Loan Scheme debt exceed the property value.
Historically, the Pension Loan Scheme has been unpopular amongst older Australians. The proposed lump sum option and guarantee that the loan amount will never exceed the market value of the property should help encourage older Australians to take up the scheme and utilise equity in their home to improve their quality of life with the reassurance that there will not be an outstanding loan following the sale of the property.
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