Self-funded retirees 10% of PLS reverse mortgages

Paul Rogan

Paul Rogan

Pension Boost is originating around 10 per cent of its government-run Pension Loans Scheme (PLS) reverse mortgages with self-funded retirees since the reforms were introduced in July 2019.

The changes, which now allow self-funded retirees to access the PLS, have been fortunately timed as these retirees have been adversely impacted by the economic impacts of COVID-19 with lower cash rates and the falls in bank dividends, plus lower rental income from investment properties.

Self-funded retirees have been heavily reliant on these sources to fund their lifestyle. Moreover, this group is highly reluctant to sell down assets given market volatility impacts on portfolios. The temporary 50% reduction in the minimum drawdown rates from super pensions has provided some shelter but that does not solve their need for income to live on.

Self-funded retirees can now access the government’s Pension Loans Scheme (PLS) to tap the equity they hold in real property by up to $55,520 yearly.

Example: Self-funded couple aged 70 with $2m in their SMSF; accessing PLS

  • Own their $1.5m home outright
  • Want to preserve as much of their SMSF portfolio as possible so chose to draw the revised pension minimum of 2.5% (i.e. their $100,000 pension reduces to $50,000 pa)
  • Use the PLS to top up their foregone income
  • They decide to draw the maximum PLS to access $2,135 per fortnight (or $55,520 yearly) to supplement their super pension for 2 years when, hopefully, they expect markets to recover post COVID
  • Once markets recover, they intend to draw more than the minimum super pension to paydown the PLS (even though they are not obliged to make any repayments of the PLS being a reverse mortgage-style solution).

By Paul Rogan, Founder and CEO

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