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.