Two proposals in particular, may improve the financial circumstances of some pensioners.
Extending eligibility to the Pension Loans Scheme
Many older Australians have a significant amount of wealth tied up in property, often the family home. So while they may be ‘asset rich’, they can also be ‘cash poor’. Australians in the 65 to 74 age bracket are one of the nation’s wealthiest groups^1, but to access this wealth, they may have to sell their family home.
The Pension Loans Scheme is a government-funded ‘reverse mortgage’ arrangement that offers pensioners an opportunity to increase their income to supplement their existing retirement income. The scheme provides access to the equity in your home, without the need to sell it. Currently, it’s offered to part and nil rate pensioners only.
It’s important to note that like any other debt, the loan does need to be repaid. An interest rate of 5.25% will also be applied to the loan, which is typically repaid when the home is eventually sold or from the estate if the retiree passes away, although you can also choose to repay it at any time.
If the government’s proposal is passed, all pension age Australian homeowners will have access to the Pensions Loan Scheme.
The scheme could mean that a single homeowner of Age Pension age could receive up to an additional $11,799 a year for the rest of their lives. For couples, their combined income could increase by up to $17,787 a year.
Income from the Pension Loans Scheme is non-taxable and generally not means tested.
How much is available under the scheme?
Bob and Sue are a 70-year-old maximum rate pensioner couple, with a house valued at $850,000. Their combined age pension income is currently $1,368.20 a fortnight ($35,573 per year), which is not enough to sustain the standard of living they would like in retirement.
Under the new Pension Loans Scheme, Bob and Sue can now access some of the equity in their home. They choose to receive $2,052 per fortnight ($53,360 per year), the full amount of 150% of the maximum rate of the age pension. The value of the income stream increases over time in line with pension indexation.
After 20 years, Bob and Sue sell the house for $1.6 million. While the balance under the Pension Loan Scheme owed to the government has grown to around $900,000, Bob and Sue pay out this balance from the sale proceeds and retain $700,000.
Over the 20 years, Bob and Sue receive around $500,000 in additional income to support their standard of living in retirement.
I’m getting the pension but still want to work
The proposed changes to the Pension Work Bonus, to be effective on 1 July 2019 if passed, are designed to support pensioners who want to keep working. Under the proposed scheme pensioners will be able to earn more money – up to $300 a fortnight (up from $250 per fortnight) - without affecting their pension payments. Eligibility will also be expanded to the self-employed. Pensioners will continue to accrue unused amounts of the Work Bonus up to a maximum balance of $7,800 each year without impacting their pension.
Other proposals for mature aged workers
- Training to help job seekers 45 years and older, who are registered with a job active provider to enhance employability, develop digital and other skills.
- Grants of up to $2,000 for workers aged between 45 and 70 to take up reskilling or upskilling opportunities.
- Retirees aged between 65 and 74 will be exempt from the work test applied to voluntary contributions for the first year the test is not met, provided their super balance is below $300,000.
These proposals are much-needed measures designed to provide income support for older Australians and ease some of their cost-of-living pressures.
ABS Survey of Income and Housing. ↩