Cash-strapped retirees have welcomed a decision to reduce the interest rate on the Pension Loan Scheme from 4.50 per cent to 3.95 per cent per annum from January 1.
With around 75 per cent of retirees owning their own homes, it's hoped the new interest rate will encourage more older Australians to tap into the equity in their homes to improve the quality of their retirement living.
As the Government chases the grey vote in the lead-up to the Federal election, it has also announced the scheme will be rebranded as the Home Equity Access Scheme to remove the confusion around self-funded retiree eligibility.
The changes will be formally announced on December 16 as part of this year's Mid-year Budget Review.
Under the scheme Australians over retirement age, both age pensioners and self-funded retirees, can use their home equity as security on a voluntary, non-taxable fortnightly loan from the Government. Age pensioners can obtain a maximum (pension plus loan) of up to 150 per cent of the maximum age pension, while self-funded retirees can receive 150 per cent of the age pension. The payments are not assessable under the Age Pension means test.
Another major change which was announced earlier this year, and which is effective from July 1, 2022, is the ability to take out a lump sum advance twice a year of up to 50 per cent of the maximum annual rate of the age pension - around $12,500 for singles and $18,900 for couples. This is useful for retirees who need to make a major purchase for example, replacing a car, paying for medical or dental bills or for home renovations.
The Government is also introducing a no negative equity guarantee clause (which prevents borrowing more than the property is worth).
"Home ownership is a bedrock of our society with Australians working hard to accumulate wealth in the form of real estate equity," said Social Services Minister Anne Ruston.
"The Home Equity Access Scheme allows Australians over the Age Pension age - whether they are pensioners or self-funded retirees - to unlock this equity using a trusted Government product to boost their disposable income in retirement."
"The lower interest rate, together with the upcoming enhancements, will make the scheme an attractive option for retirees," said Ms Ruston. "The new name also seeks to make sure that all retirees, not just those on a pension, know they can benefit from the scheme if it suits their circumstances."
The Home Equity Access Scheme allows Australians over the Age Pension age - whether they are pensioners or self-funded retirees - to unlock this equity using a trusted Government product to boost their disposable income in retirement.
Win for advocates
The changes are a win for seniors advocates who have been campaigning for a revamp of the scheme for some years.
National Seniors Australia Chief Advocate Ian Henschke said the changes showed the government was listening to older Australians who now make up half of all voters.
"It's good Minister Ruston and the government have recognised our campaign on the need to rebrand, and to lower the interest rate. The old name of the scheme was confusing. Many people didn't realise they were eligible and many also were put off by the high interest rate.
"The two big changes - a lower interest rate and increased awareness of the availability of the scheme - have been the cornerstone of National Seniors' campaign since the last election. The rate will drop to 3.95 per cent and people will be able to take out a lump sum twice a year or have fortnightly payments. There is also a no negative equity clause. All big improvements."
"Most house prices around the country have been going up, so homeowner's will be able to tap into their equity and have a higher standard of living. This will be good for seniors and the economy."
National Seniors is also pushing for a dedicated home care loans scheme with a lower rate of interest to give home care recipients the ability to stay in their own home rather than move into residential care.
Most house prices around the country have been going up, so homeowner's will be able to tap into their equity and have a higher standard of living. This will be good for seniors and the economy.
Council on the Ageing (COTA ) Australia Chief Executive, Ian Yates, said the new changes will further enhance a scheme that is being increasingly used by many older Australians to supplement other sources of income in retirement.
"This enhanced scheme will make a positive difference to a growing number of older Australians looking for ways to better fund their retirement."
Mr Yates said the revamped scheme builds on the findings of the Retirement Income Review which showed that many older Australians could tap into their home equity to unlock cash for an improved standard of living in retirement.
"Some of the changes, including the intention to permit lump sum payments, are subject to legislation passing in February, so we ask all parties will assist smooth passage through Parliament so that older Australians can start reaping the benefits," said Mr Yates.
Wayne Strandquist, National President of the Association of Independent Retirees, said the interest rate reduction on the loan scheme was welcomed by retirees.
"Retirees have been criticised in the media for holding substantial wealth in their homes. The Home Equity Access Scheme from the Federal Government provides retirees with more flexibility to meet their expenses by accessing a voluntary non-taxable fortnightly loan up to 150% of the Age Pension payment", said Mr Strandquist. "These latest changes to the HEAS announced by the Government together with the changes introduced into Parliament early in December that provide for a No Negative Equity Guarantee and access to capped lump sum payments, will take the pressure off retirees and enable them to improve their living standards," he said.
For more information on the scheme, go to the Services Australia website.