Pension Loan Scheme not assessable income


Louise Biti

Much excitement was generated by the May Budget announcement to extend the Pension Loan Scheme (PLS).

“This proposed to allow full pensioners, part pensioners and self-funded retirees greater opportunities to use the PLS to top-up income – important particularly for clients trying to fund aged care” explained Louise Biti, Director at Aged Care Steps.

The excitement was dampened by published articles that claimed the amounts borrowed would count as assessable income. This effectively turned a client’s equity into assessable income and created disparity between the assessment of the PLS and commercial equity release schemes.

Biti explained “Our analysis was that this was an incorrect assessment and was not supported by provisions within the Social Security Act or the Aged Care Act. The issue was raised with both the Departments of Human Services (DHS) and Health for clarification”.

“The good news is that the Department of Health has today verified that amounts borrowed under the PLS will NOT count as assessable income for determining either age pension entitlements or aged care fees. This means both the PLS and commercial equity release products will be assessed under the same income test rules” Biti added.

The PLS scheme allows a person over age pension age who can offer Australian real estate as security to borrow fortnightly income up to 150% of the maximum age pension (less eligible pension payments). This does limit the amount that can be borrowed and does not allow lump sums but the current interest rate of 5.25% is lower than the commercial market rates and is also lower than the interest used to turn the refundable accommodation deposit (RAD) for residential aged care into a daily accommodation payment (DAP).

If passed, the PLS may become an important strategy for clients who became asset-rich with property price increases to stay in their home and generate extra income to pay for home care or to pay for residential care of a spouse. This option and other equity release options may help to provide relief for clients who are in the National Queue waiting for home care packages. These people may be able to borrow extra income to pay for care while they wait for government subsidies.

Ms Biti explained “The one problem we still have is that according to ASIC, only advisers authorised under an Australian Credit Licence can provide advice on the PLS. The Financial Information Services (FIS officers) at Centrelink can also provide information as they are exempt from the licencing requirements”.

Advisers not operating under a credit licence will need to limit their advice to the strategy of using equity release to increase income and refer clients to a broker or FIS for information on the specific options. Page | 2 Biti concluded “Perhaps we can get some change in this area of legislation”. For further information, see our media release issued in June 2018 on licencing.

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