As part of the federal budget, the government announced a plan to extend the Pension Loans Scheme from July 1, 2019. This was the first time many people had heard of it. In its current form, the scheme allows pensioners (and people who would qualify under either the income test or the asset test but are ineligible based on the other) to borrow against their home to fund the difference between their pension entitlement and the full pension as a fortnightly payment.
The Pension Loans Scheme is basically a government reverse mortgage that enables people who get a part-pension, and some who get no pension, to top up their fortnightly income to the full pension amount, using a loan. The government takes a charge over the property and makes a fortnightly payment. Naturally, there are limits around the amount that can be borrowed, based on your age and the value of the property you are offering. Payments can only be made fortnightly and they can be started and stopped, but you cannot access a lump sum. Interest is charged on the outstanding balance each fortnight at 5.25 per cent a year.
The proposed extension of the Pension Loans Scheme would see maximum payments increased to up to 150 per cent of the age pension, and eligibility extended to anyone of age-pension age. This would mean people receiving a part-pension or no pension would be able to receive a higher payment than currently, and self-funded retirees and those on the full pension would gain access to the scheme for the first time.
An obvious use for the Pension Loans Scheme is to fund aged care, whether that be through a home care package, residential aged care or other services. So naturally, my first question to the Department of Health following the announcement was how the Pension Loans Scheme would be treated for aged care means-testing purposes. Their response, to my surprise, was the PLS would be included in assessable income – potentially increasing the cost of aged care for those accessing the scheme. I outlined the impact of this in a recent column.
In the weeks and months following the budget announcement I spoke with a number of people in the department about the treatment of the Pension Loans Scheme for people accessing aged care, highlighting the fact that including the Pension Loans Scheme but disregarding monies borrowed through reverse mortgages offered by financial institutions, would potentially create a higher interest rate for the bank products and a detriment to people who could access only the Pension Loans Scheme.
I was delighted this week to receive an email from the department saying the Pension Loans Scheme would not be included as assessable income for either home care or residential aged care means tests. Furthermore, the department has undertaken a review and confirmed that none of the current cohort accessing the Pension Loans Scheme are having these funds assessed in the aged care means test.
This is a win for common sense. But it is also a win for consumers who do not want to – or can’t – borrow money to fund their aged care through banks or financial institutions.
Rachel Lane is the principal of Aged Care Gurus.