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5.4.2 Eligibility Criteria for Pension Loans Scheme

Document
Last amended 
1 July 2019

To be eligible to participate in the pension loans scheme, a person must be:

Income Support Supplement (ISS) and the Pensions Loans Scheme

A person who has reached qualifying age and receiving or is eligible to receive income support supplement is eligible to participate in the pension loans scheme.

War widows or war widowers who are also veterans and the pension loans scheme

A war widow/widower who is also a veteran is eligible to participate in the pension loans scheme. Prior to 20 September 2002, the pension loan payable was limited to a “maximum” of $124.90 per fortnight, however, after 20 September 2002 the maximum pension loan payable will increase in line with the indexation of ceiling rate service pension.

Transfer from the original Pension Loans Scheme to the revised Pension Loans Scheme

The origanal scheme was closed to new entrants on 9 July 1996.   Pension loans scheme participants under the original scheme may request at any time to trasfer to the revised pension loans scheme. Provisions of the revised pension loans scheme apply from the first pension payday after the request is lodged to transfer to the revised scheme. Once a transfer is made to the revised pension loans scheme, it is not possible to transfer back to the original scheme.  if no request to transfer is made, the person continues to be covered by the original scheme.

Security required for Pension Loans Scheme

Before payment under the pension loans scheme may be considered, a pensioner needs to have sufficient real assets less any nominated amount that they are prepared to offer as security against the loan. Only real estate owned in Australia can be used as security for a loan under the pension loans scheme. Any real estate, including the principal home, may be used.

Securing the debt

A debt arising from a pension loan is secured by a statutory charge over the property that the person has offered as security. In practical terms, the Commonwealth lodges a caveat over the property, which prevents the sale of the property until those identified on the caveat are given a hearing. The caveats are lodged by Legal Services and Audit Branch. In some states a 'notice of charge' may be issued rather than a caveat. A notice of charge has the same effect as a caveat, in protecting the Commonwealth's interest in the property.

The effect of a mortgage on property

A mortgage on a property which is offered as security for a pension loans scheme debt does not necessarily disqualify a person from participating in the scheme. The mortgage should be taken into account when valuing the person's equity in the real asset, and when calculating the maximum loan available to the person.

Payment for costs involved

The applicant is responsible for the costs to the Commonwealth in placing the charge or caveat on the property. Payment of costs can be made either at the time of registration, or can be added to the debt. The person is also responsible for the subsequent cost of removing the charge or caveat. If this occurs after the person's death, their estate will incur the charge.

Insurance

Before the granting of a Pension Loan, proof of adequate and appropriate insurance is required.  Participants are required to keep the insurance current and notify DVA of any significant changes.  

Adequate insurance means having a building insurance policy that covers the property for standard events including:

  • fire, 
  • escape of liquid;
  • flood;
  • storm and
  • explosion,

for an insured amount that is equivalent of at least 90 per cent of the value of all buildings on the property. PLS recipients are required to advise of any significant changes to the insurance policy covering the property used to secure a PLS loan.

As vacant land may be used as a securable “real asset/real property” and therefore can be offered as security for a PLS loan, Third Party Liability Insurance would be required for this type of asset.

Nominated amount

A nominated amount is the agreed amount of equity of a person’s secured asset that they elect not to be included in the determination of their maximum loan amount. This limits the growth of their PLS debt, but does not prevent the recovery of this amount by the Commonwealth. The recipient may change the nominated amount at any time.

The nominated amount will also be taken into account in determining whether the value of a person’s real assets are sufficient to secure the payment of any debt that may become payable to the Commonwealth under the PLS.

Example: A person has a property valued at $200,000 that they offer as security for their PLS debt. They wish to nominate an amount of $85,000 to limit the total PLS debt that they will accrue with the Commonwealth. When determining their maximum loan amount under the PLS, the value of real assets will be $115,000 (i.e. $200,000 minus $85,000). This is the difference between the total value of the property and the amount of equity they have nominated.  The person’s PLS debt reaches $100,000 by the time they cease to participate in the scheme.  If the value of the real estate has fallen to $150,000 at the time it is sold and the debt is to be repaid, the full $100,000 debt must be repaid, even though this would leave the person with less than their nominated amount.

 

For the purposes of Part VI of the VEA, a reference to a veteran is taken to be a reference to:

  • a veteran as defined in subsection 5C(1) of the VEA;
  • a member of the Forces as defined in subsection 68(1) of the VEA; or
  • a member of a Peacekeeping Force as defined in subsection 68(1) of the VEA.

For the purposes of Part VII of the VEA, according to subsection 5C(1), veteran means a person (including a deceased person):

  • who is taken to have rendered eligible war service, or
  • in respect of whom a pension is, or pensions are, payable under subsection 13(6) and
  • in Part III and Part VIIC of the VEA includes a person who is:

 

 

Currently, the pension age for a veteran is 60 years of age (VEA 5QA).

The pension age for a non-veteran is determined by the table below:

Date of birth (both dates inclusive)

Age Pension age

1 July 1952 to 31 December 1953

65 years and 6 months

1 January 1954 to 30 June 1955

66 years

1 July 1955 to 31 December 1956

66 years and 6 months

On or after 1 January 1957

67 years

 

A person's 'partner' is someone who is a member of a couple with that person.

Currently, the pension age for a veteran is 60 years of age (VEA 5QA).

The pension age for a non-veteran is determined by the table below:

Date of birth (both dates inclusive)

Age Pension age

1 July 1952 to 31 December 1953

65 years and 6 months

1 January 1954 to 30 June 1955

66 years

1 July 1955 to 31 December 1956

66 years and 6 months

On or after 1 January 1957

67 years

 

A war widow/widower is generally a person who immediately before their partners death, was the partner of, or was legally married to:

Refer to 5E(1) of the VEA for the full definition.

 

 

Qualifying age is defined in section 5Q(1) of the VEA and is equivalent to the pension age for a veteran which is described in section 5QA VEA as:

  •       60 years for a male,
  •       for females subject to age equalisation (refer to the table in section 5QA VEA).

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.

 

 

The ceiling rate of service pension and income support supplement (ISS) is applied to all war widows/widowers when assessing the rate of pension. This amount was previously frozen at $124.90 per fortnight, however, since legislation was introduced in September 2002, is now indexed twice yearly in line with percentage increases in the maximum rate service pension. A higher ceiling rate can apply, however, in the following cases:

If a person:

  • became a war widow/widower-pensioner before 1 November 1986,

  • has continually received service pension, social security pension or ISS since that date, and

  • the rate of pension immediately before that date was more than $120.10

in such a case the ceiling rate is equal to the pre-November 1986 rate plus 4%.

If a person:

  • is a person to whom ISS is payable,

  • is not permanently blind, and

  • whose Part II or IV pension is [glossary:compensation reduced:DEF/Compensation reduced pension],

the ceiling rate is the sum of the ceiling rate as calculated above and the amount of the reduction in the Part II or Part IV pension. The maximum ceiling rate cannot exceed the maximum rate of single service pension. For ceiling rates refer to SCH6-A4 to A9 of VEA. The amount of increase to the ceiling rate pension under Part II or Part IV is worked out by using the formula in SCH6-A9 of the VEA.

 

 

Real Assets includes any real estate of the person in Australia (including the principal home) nominated by the person as security but excluding any specified property which the person wishes to exclude. Refer to subsection 52ZAAA(1) for a full definition.