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5.4.1 Overview of Pension Loans Scheme

Document
Last amended 
1 July 2019

What is the Pension Loans Scheme?

The pension loans scheme is a voluntary reverse equity mortgage that offers older Australians an income stream to supplement their retirement income. This allows people who have assets in the form of Australian real estate, but who need or want additional income in retirement, to draw on the value of those assets in the form of a fortnightly payment.

The maximum fortnightly payment underthe scheme, including any actual pension or ISS entitlement, is 150% of the maximum rate of service pension or income support supplement.

The person's outstanding debt is subject to a compound interest rate and the debt is secured by a statutory charge over the person's real estate in Australia.  The debt would normally be repaid if the real estate is sold, or from the person's estate after their death.

Who is eligible to participate in the scheme

Persons who are eligible for service pension, partner service pension or income support supplement and gave reached pension age (qualifying age for income support supplement) may elect to participate in the pension loans scheme.    

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Administration of the scheme

The Pension Loans Scheme application form must be completed by all participants in the scheme.  An interview should be conduced in all cases to ensure issues associated with participation in the scheme are fully understood.    

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Payment of Pension Loans Scheme

This section explains how the amount of the pension loan is calculated, how it is to be paid to the debtor (pensioner), the applicable interest rate and how it is to be managed including the taking of a statutory charge as a security.    

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Review of Pension Loans Scheme

Specific changes in personal or financial circumstances may require a full review of the loan or a recalculation of the amount of loan payments.     

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Recovery of loan debt

A debt under the pension loans scheme is not usually recovered until after the death of the pensioner, however the Repatriation Commission may require a loan to be repaid before death in certain circumstances.     

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A service pension is an income support payment broadly equivalent to the social security age and disability support pensions. It may be paid once a veteran or partner has reached the nominated age or is incapacitated for work.

ISS is an income support payment that may be paid to eligible war widows and widowers under the VEA and persons receiving wholly dependent partners' compensation under the MRCA, and who satisfy the means tests. It is an indexed rate, increased twice-yearly in March and September in line with changes to the cost of living and/or average wages. Income Support Supplement (ISS) legislation commenced on 20 March 1995. It is a payment created to replace the ceiling rate income support age, carer, wife and disability support pensions, paid to war widows/widowers by Centrelink.