Pension Loans Scheme Extension Benefits Age Pensioners But Still Limited

By Darren Moffatt

May 16, 2018


I was recently quoted in an opinion piece written by Bina Brown and published by the Australian Financial Review. Entitled “How to use the budget pension loan scheme for aged care help”, the article explores the idea of unlocking the family home as the “fourth pillar” of the retirement income system.

The decision of the government to extend the Pension Loans Scheme (PLS) to include all eligible retirees can be perceived as a validation of our efforts in the private sector to promote reverse mortgage as a sound way for Australian seniors to live a better retirement.

[ Related Post: Pension Loans Scheme: Government Reverse Mortgage to be Expanded ]

Through a reverse mortgage, also known as a home equity loan, eligible seniors can unlock the wealth of their home without the need to sell the property. The loan proceeds can be used to improve the standard of living during retirement.

Despite Extension, the Pension Loans Scheme Is Still Limited

In the article, I expressed my belief that the PLS extension will be of greatest benefit to full pensioners with no other options to increase their income. However, it is also a fact that the scope of this “government reverse mortgage” is limited because it doesn’t offer a lump-sum option.

The PLS can only be taken as an income stream that is added to the borrower’s pension. In comparison, a reverse mortgage loan from Seniors First can be accessed in three ways:

  • a lump sum
  • a regular income stream
  • cash reserve
  • or a combination of all

With my experience in helping senior borrowers unlock home equity through reverse mortgages, most people want only a small to a medium lump sum, often with further access to a standby fund to mitigate longevity risk. At Seniors First, the average loan we originate is around $85,000, and the loan proceeds are often used for debt consolidation, home improvements, and aged care financing.

[Related Post: Changes in Pension to Boost Interest in Reverse Mortgages ]

PLS is fairly limited because it will not help Australian seniors who need a sizeable lump sum needed for residential aged care in form of the Refundable Accommodation Deposit (RAD). The RAD is an upfront lump sum payment to the aged care home, which may average between $300,000 to $400,000. However, the income stream for PLS can be used to settle the Daily Accommodation Payment (DAP) that is another option to move into aged care.

While the extension of the PLS is commendable, it is not for everyone. If you need a lump sum amount to pay for aged care and other needs during retirement, a reverse mortgage is another option available.

It is important to take note that the changes in the PLS will start on 1 July 2019, if legislation passes.

To help you learn more about reverse mortgages, you can download our FREE REVERSE MORTGAGE GUIDE. You can also call Seniors First Finance at 1300 745 745 or post your comments below.



    • Difficult question to answer – do not have enough information. Please call 1300 745 745 to discuss reverse mortgage loans and seniors home loans further. Regards, Darren

  • Hi Darren ,

    I am enquiring she would love to move closer to family and better medical facilities. She has found a retirement village she really likes in order to raise the required funds she needs to sell her home in Rockhampton which may take some time. She receives an old age pension and owns her own home; is there any financial option that might allow her to move on with her life and not wait till her home sells.

    • Thanks Barb. The quick answer (based only on the info provided in your comment) is probably not. Technically, a reverse mortgage loan could be used to ‘bridge the gap’ in funding if enough equity could be released from the home to purchase the retirement unit (unlikely), but there are a few problems with this: Reverse mortgages are NOT designed for short term loans. You will incur set up fees of up to $2,000, and any reverse mortgage lender will (understandably) be reluctant to take the property as security in any case if it is already listed on the market for sale.

      Another important point to consider here is that it is not possible to get a reverse mortgage on Retirement Villages. So if your family member may need to release equity from the unit in future, she will not be able to do so via a reverse mortgage, as reverse mortgage lenders do not take these properties as security. DM

  • I checked with Centrelink about this payment and it can’t be offered to any one receiving a full pension, so I have to ask how did you come upon this explanation.
    According to the website under Pension Loans Scheme they only lend up to the value of a full pension.If you have a full pension they won’t lend you anything ???
    Please explain how you reached this other conclusion of being able to get a payment amounting to over $17,000 per annum when on a full pension ?

    • Yes Terry, reverse mortgage loans are available in regional areas of Australia. However if the town is very small/remote country town there may be some restriction. Typically the security value of the home must exceed $200,000 and if the property is zoned rural/farm it may not be accepted by the reverse mortgage lender. Email me directly & confidentially with your address is your would like me to check for you. DM

  • I am a full Aged Pensioner, 85 years old and I am wondering if the extension to the PLS can be started, utilised for a few years and then cancelled for a few years, and then restarted again with the same or a different amount?
    I am not interested in a lump sum option.
    How does the interest rate of 5.25% stack up against other Reverse Mortgage options?
    If you have any other information about the Government scheme I would be interested to receive it.
    I believe I am still 4-5 years away from needing to take a reverse mortgage option.


    Peter Wornham

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