October 2019

What is the Pension Loans Scheme?

The Pension Loans Scheme (PLS) is a loan facility administered by Centrelink which provides certain individuals with the ability to increase their age pension payments up to 150 per cent of the maximum pension rate. The loan is secured against real property. Repayment can be made at any time, but is required upon the sale of the property or upon death.

Qualification criteria

To qualify for the PLS an individual must:

  • be of age pension age, or be the partner of an individual who is age pension age,
  • qualify for a pension1 (even if they are receiving a nil rate of payment under both the income and assets tests),
  • not be bankrupt or subject to a personal insolvency agreement,
  • own Australian real property of sufficient value to secure the loan, and
  • have adequate and appropriate insurance in relation to the real assets securing the loan.

Payment Amount

The PLS will loan an amount up to the difference between an individual’s current pension entitlement (possibly nil) and 150 per cent of the maximum rate of pension, each fortnight. This allows full rate pensioners to receive an extra 50 per cent of the maximum fortnightly pension in the form of a loan.

See the Macquarie Big Black Book for details of the age pension rates and thresholds.

Maximum Loan

The maximum loan depends on the following factors:

  • age of the individual or, for couples, the age of the younger partner at the time the loan is granted
  • value of the property, and
  • the equity the individual wishes to keep in the property.

It is calculated using the formula:

 
Age component x
Value of real estate equity210,000


The age component (see table below) is based on the age of the individual or the age of the youngest member of a couple. 

Age Age component Age Age component
<55
1,710
73
3,460
 
56
1,780
74
3,600
 
57
1,850
75
3,750
58
1,920
76
3,900
59
2,000
77
4,050
60
2,080
78
4,210
61
2,160
79
4,380
62
2,250
80
4,560
63
2,340
81
4,740
64
2,430
82
4,930
65
2,530
83
5,130
66
2,630
84
5,330
67
2,740
85
5,550
68
2,850
86
5,770
69
2,960
87
6,000
70
3,080
88
6,240
71
3,200
89
6,490
72
3,330
90 and over
6,750

 

 

Example

The home of Joe (age 69) and Jan (age 65) is valued at $560,000. The PLS allows them to borrow up to: 2,530 x (560,000 / 10,000) = $141,680

The maximum loan amount is not fixed. It is recalculated once every 12 months in January or July following the individual's birthday to adjust for the higher age component available.

The PLS payments are made fortnightly and stop when the loan reaches the maximum loan amount. Interest continues to accrue until the loan is repaid.

An existing mortgage over the property generally does not disqualify the individual from the PLS. However, the conditions of the existing mortgage contract may prevent an additional charge being placed over the property.

In addition, the existing mortgage should be considered when valuing the property for the purposes of determining the maximum loan available.

Security

The PLS is secured via a statutory charge over the real property. Security details include:

 
What
 
Any real estate, including the family home and business real property
 
How
 
Centrelink will register a charge or caveat over the property(s) with the Land Titles Office. The individual pays this cost or it is added to the loan.
 
Valuation
 
Valued independently by the Australian Valuations Office. This is done at no cost to the individual.
 
Multiple Properties
 
If the individual has more than one property, they can exclude some of the properties from the assessment.
 
Retained Equity
 
The individual may choose to retain equity in the property. This amount is deducted from the value of the property offered as security for the loan.


Treatment of Payments

Where the loan is held against an assessable asset, the value of the asset for means tests purposes is decreased by the outstanding amount of the loan. This may have the effect of increasing the amount of income support the individual is eligible to receive.

This does not apply if the loan is held against the principal home which is not an assessable asset under the social security means tests.

Taxation of Payments

The loan payments are not assessable and not taxable. See ATO Taxation Determination TD 96/14.

In addition, they are not counted for the purposes of the Seniors and Pensioners Tax Offset or the Low and Middle Income Tax Offset.

Interest

 
What Interest rate
 
5.25% pa compounded fortnightly (unchanged since 25 Dec 1997)
 
Deductibility
 
Interest is generally tax deductible if the loan is used to purchase income producing assets

 

Commonwealth Seniors Health Card Eligibility

PLS payments are not included in the calculation of adjusted taxable income for the purpose of the Commonwealth Seniors Health Card.

Repayment

The loan can be repaid (in part or full) at any time.

If the individual wishes to sell a property that is used as security for the PLS they will be required to repay the loan from the sale proceeds, or offer and have accepted a new property as security for the loan.

The Commonwealth is generally not entitled to recover the loan until the sale of the property or death of the individual. The loan may be repaid from the estate after death. Where the deceased was a member of a couple and the surviving partner has use of the property and has reached age pension age, then the Commonwealth is unable to sell the property until after the death of the surviving partner.

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Additional information

1 Recipients (and partners in some cases) of age pension, disability support pension, carer payment, widow B pension, bereavement allowance, wife pension, veterans’ service pension or income support supplement may qualify.

2 Rounded down to the nearest $10,000.

Macquarie Investment Management Limited (MIML) ABN 66 002 867 003 AFSL 237 492 is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959, and MIML’s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542.  Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MIML.

This information is provided for the use of financial services professionals only.  In no circumstances is it to be used by a potential investor or client for the purposes of making a decision about a financial product or class of products.

The information provided is not personal advice. It does not take into account the investment objectives, financial situation or needs of any particular investor and should not be relied upon as advice.  Any examples are illustrations only and any similarities to any readers’ circumstances are purely coincidental. 

While the information provided here is given in good faith and is believed to be accurate and reliable as at October 2019, it is provided by MIML for information only.  We will not be liable for any losses arising from reliance on this information.

MIML and Macquarie Bank Limited do not give, nor purport to give, any taxation advice. The application of taxation laws to each client depends on that client’s individual circumstances.  Accordingly, clients should seek independent professional advice on taxation implications before making any decisions about a financial product or class of products.

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