Topping up? Loan scheme expands

Financial commentator urges caution on Pension Loans Scheme

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Noel Whittaker explains changes to the Pension Loans Scheme.


Q - I read that the Pension Loans Scheme is changing, and that if we want, we can get 150 per cent of our fortnightly pension to help make ends meet. How does this work and are there implications down the track?

A - Big changes from July 1, 2019, will affect new and existing participants. The amount you can get per fortnight will increase from 100 per cent to 150 per cent of the maximum fortnightly pension rate. This means you can get 1.5 times the maximum rate of pension each fortnight. The scheme is also available to self-funded retirees who do not qualify for the age pension right now.

To be eligible you will need to own real estate in Australia with enough equity to secure the loan. The interest rate will be 5.25 per cent and loan payments made to the borrower each fortnight.

Bear in mind that the essence of a reverse mortgage scheme, as this one is, is that no repayments of principal or interest are made. This means the debt will increase at a faster rate as years pass.

This is why it is important to involve all family members when considering any reverse mortgage as you are spending money now at the expense of their legacy. In an ideal situation the family would pay the interest to stop the debt growing.

Q- My wife and I have signed wills and enduring power of attorney forms arranged by a legal person. If either of us pass, the remaining person will be executor of the will and trustee of the trusts.

When we both pass our two children will be joint executors and joint trustees. What if they don't agree on how the remaining assets in the trust should be split? At present we own our assets. When we pass, do the assets become part of a testamentary trust which would be controlled by the trustees of the trust?

A - Elder lawyer Brian Herd of CRH Law says this is almost impossible to answer without seeing what the wills say as opposed to what you think they say.

The impression is that the wills create a mandatory testamentary trust, initially for each other, and then for the two children; that is, there is only one trust ultimately for both children. It is generally not wise to make it mandatory and to have only one testamentary trust.

Two children running one trust: recipe for dispute. It is generally preferable to have separate trusts. However, there could be a situation where the trusts own an asset between them. Expert advice is essential.

  • Do you have a question for Noel? Post to Q&A, PO Box 130, Wyong NSW 2259 or email Personal replies will not be given.

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