Financial Care Services Newsletter
Volume 11 Edition 6 – 30 June 2021
Financial Care Services, the specialist adviser to seniors in transition to new lifestyles
When your income including any Age Pension is not enough for a modest lifestyle the Pension Loan Scheme might be helpful.
The full rate of Age Pension could be enough for a senior to have a basic lifestyle provided that she owned a good quality home.
Her Age Pension would cover neither substantial energy bills for a poorly insulated home nor significant modifications or maintenance of her home. She could afford short off-season stays in self catering holiday parks but no ‘great trips of a lifetime’.
Thus homeowner seniors can be asset ‘rich’ but cash ‘poor’.
These Age Pensioners might be able to pay for only a basic lifestyle whilst owning a valuable property.
Accessing the store of wealth in the home by downsizing
One way of accessing the wealth stored in the senior’s property would be to sell the home and buy a less expensive property more suited to their physical needs and lifestyle.
This ‘downsizing’ raises many emotional issues along with the practical aspects of packing up and moving house after decades in the one place.
The financial implications of ‘downsizing’ could include freeing up money for the senior to use for living expenses.
A replenished bank account would allow for a few luxury holidays, that is, travel tours to new places staying in good hotels with medical help available. This nice pile of cash could also fund a better motor vehicle and renewal of the household furniture and whitegoods.
Yes, spending part of the kids inheritance on a reasonable standard of living during those early years of active retirement.
Centrelink would be alert to the sale of the Age Pensioner’s home.
Centrelink could assume that the Age Pensioner has retained the full amount of the home sale proceeds if full details of the next home purchase are not provided immediately to Centrelink.
The difference between the sale price and the costs of moving to new home would be an additional assessable asset for the Age Pension Asset Test.
Unless all of the equity released by downsizing were spent on holidays, household goods or personal items, the downsizing could apply to both the senior’s home and their Age Pension payments.
Accessing the store of wealth in the home by borrowing a lump sum
Another way of accessing the wealth stored in their property would be to borrow using the property as surety for the loan.
These are reverse mortgages, the accruing interest and the principal amount borrowed only need to be repaid once the owner exits the home permanently.
The senior needs to manage this borrowed money carefully.
If the reverse mortgage principal amount is accruing interest at a higher rate than term deposits earn then maybe having a big borrowed amount in your bank account is not smart. But spending the money frivolously just to reduce your Age Pension assessable ‘financial assets’ is not smart .
Centrelink treat the borrowed lump sum as a financial asset.
Having an additional large financial asset could result in the senior’s Age Pension payments being reduced under the Income or Assets Tests.
Later Centrelink could increase the Age Pension payment amounts as the borrowed money is spent on the senior’s own living costs.
Beware, if you gift, or on-lend the money borrowed via your reverse mortgage then Centrelink would treat you as still having that borrowed money in your bank account for at least five years.
Accessing the store of wealth in the home by borrowing for additional Age Pension payments.
A less stressful means of increasing your regular spending money without reducing your Age Pension payments is the Centrelink Pension Loan Scheme.
The Pension Loan Scheme is a reverse mortgage on your home or another property that you own.
Your drawdowns from your Pension Loan Scheme account could be by regular fortnightly payments or by annual one-off lump sums to cover major expenses.
The Pension Loan Scheme allows for a maximum fortnightly Centrelink Age Pension payment of 150% of the full Age Pension.
Consider Sue who owns her home and a basic motor car but has only a tiny bank balance.
Sue’s income is a full Age Pension.
Sue is in good health and would like to buy a better more reliable vehicle and travel within Australia to visit her extended family.Sue has always managed on a modest income; she would not trust herself not to squander a big amount if she borrowed a lump sum via a reverse mortgage.
She would be scared that her family might ask her to help them pay for school fees or new cars if she had a substantial amount of money in her bank account.Sue applies for the maximum payment under the Pension Loan Scheme.
Sue is already entitled to the full Age Pension.
Sue is happy to be collecting another 50% of the Age Pension as drawdowns from her Pension Loan Scheme reverse mortgage.
Sue feel that she could manage to save up for her new car and then her trips within Australia using her additional income.Sue expects to reduce her total fortnightly payments to closer to the Age Pension as she gets older and does not want to travel extensively.
Sue is aware that by taking an instalment loan via the Pension Loan Scheme she would have less equity in her home to pay for residential aged care or bequeath to her children.
Accessing the store of wealth in the home when your total assets exclude you from any Age Pension
The Pension Loan Scheme is also available to senior citizens who are excluded from any Age Pension by the Asset Test or Income Test.
Seniors who satisfy the age and residency requirements for an Age Pension may apply for instalment loans under the Pension Loan Scheme. This means that you must have reached your Age Pension Age before you could apply for the Pensioner Loan Scheme.
The maximum instalment loan is equivalent to 150% of the Age Pension.
Consider Bob and Betty who were self-funded retirees.
When they first retired, Bob and Betty owned their own home and a beach house.
On retirement, Bob had substantial superannuation accounts that provided for a comfortable lifestyle.
In their early years of retirement, Bob and Betty were excluded from any Age Pension because their financial assets including superannuation, were well over the Asset Test cut-off level.Now that Bob and Betty have been retired for twenty years their financial assets are only $50,000.
But they are still excluded from any Age Pension because the land under the family beach house is worth over a million dollars. The beach house itself is tired but still adequate for family holidays.Bob and Betty may apply to Centrelink for fortnightly payments of upto 150% of the Age Pension as instalments of a loan secured against their home or holiday house under the Pension Loan Scheme.
The Pension Loan Scheme
The Pension Loan Scheme is just that: a scheme for seniors to borrow money from the Commonwealth.
The Pension Loan Scheme is open to seniors who satisfy the age and Australian residency requirements for an Age Pension.
The amount that you could borrow under the Pension Loan Scheme is limited by the value of the property that you provide as surety for your loan.
The loan must be secured by a mortgage on real property, that is, land that has the borrower’s name on the land Title.
The Pension Loan Scheme might not accept as security a property that is not owned solely by the borrower Age Pensioners.
The ‘right to occupy’ or lease, of a retirement lifestyle community independent living unit would not be acceptable as security for the Pension Loan Scheme.
Interest is charged on the outstanding amount of principal including mortgage set up costs, and accrued interest. The Commonwealth sets the interest rate for the Pension Loan Scheme. At June 2021 interest accrues on Pension Loan Scheme at the rate of 4.5% per annum with compounding fortnightly on the outstanding loan balance.
The total amount of owing must be repaid when the borrower’s exit or sell the property used as security for the Pension Loan Scheme.
The amount repayable under a Pension Loan Scheme account cannot exceed the value of the property used as security for the loan. Thus you cannot end up owing the Pension Loan Scheme more than the value of the property used as security for your loan.
Christine at Financial Care Services your independent adviser
Financial Care Services is an independent advisory service specialising in retirees of modest means and aged care entrants.
Our core values include working with clients in claiming DVA and Centrelink entitlements.
The team at Financial Care Services are here to answer your Age Pension questions and guide your understanding of aged care costs.
Help with Centrelink challenges is available from Christine Hopper at Financial Care Services, the specialist adviser to seniors in transition to new lifestyles.
Christine has neat handwriting just right for inserting your data into small printed spaces. She helps clients complete Centrelink forms.
Christine could help you with collating your supporting documents and then mailing your form to Centrelink.
Assistance with completing Age Pension Claims and the Commonwealth aged care means testing forms is available to clients of Financial Care Services.
Christine charges fees based on the work involved in advising you about pensions and aged care fee solutions.
To make an appointment for confidential, independent and professional advice about aged care, retirement lifestyle costs, granny flat or Age Pension issues please contact Christine Hopper or call +61 3 9808 0338.
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Christine Hopper
Financial Care Services Pty Ltd
Independent aged care, strategic lifestyle and Social Security advice for seniors in Melbourne, Victoria, Australia
Telephone – call +61 3 9808 0338
Email – contact info@financialcareservices.com.au
Address – mail to 172 Warrigal Road, Camberwell Victoria 3124
Website – visit financialcareservices.com.au
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Disclaimer: The information contained in this newsletter is of a general nature only and does not constitute “financial advice”.
All eligibility for Commonwealth benefits will be determined by Centrelink or DVA, based on your personal position as documented and the legislation and Regulations in force at that time.
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