From 1 July 2019 every homeowner over Age Pension age will be able to take out a Government–backed loan on the equity of their home to boost their annual income by more than $11,000 for the rest of their lives.
Under its ‘More Choices for a Longer Life’ package, the government has opened the Pension Loans Scheme to all retirees of Age Pension age – not only part-rate pensioners as is currently the case.
The loans scheme is essentially a mortgage which allows retirees to supplement their income by lending against their home equity.
Retirees on a full Age Pension will be able to use equity in their homes to increase the maximum fortnightly income to 150% of the maximum Age Pension, which is about $23,000 a year for individuals. That’s additional income of about $11,500.
Income streams from the loans scheme are non-taxable and not means tested.
Loans only need to be repaid – at an interest rate of 5.25% pa – if the house is sold, or the borrower dies, in which case it is repaid by their estate.
Mercer Financial Advice Leader, Richard Ebbs, says the new policy – combined with other initiatives announced in this year’s budget – has “fundamental implications on how long your funds may last in retirement and how much age-pension you get”.
“Allowing pensioners to tap into the value of their home to top up their income in retirement will influence how long the money may last,” Ebbs says. “How and when you access the scheme and how it works with some of the other measures is where the complexity comes in.”
“All those decisions at the point of retirement and further into retirement really highlight the need for quality advice and making sure you make good choices.”
If you’d like to speak to a Mercer Financial Adviser, book an appointment today.