Finance Your Super Budget 2018: Retirees get a leg-up with government loans against houses

Budget 2018: Retirees get a leg-up with government loans against houses

Retiree budget
The budget will give retirees access to more cash. Photo: Getty
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The Turnbull government has reached out to older Australians with a clutch of budget measures designed to deliver cash to retirees and those moving towards retirement.

But the benefits of its most significant scheme are skewed to those with more wealth.

“Overall it is a budget that is aimed at meeting some of the requirements of older Australians,” Ian Yates, CEO of seniors lobby group COTA, said.

The most significant measure is the expansion of the little-known Pension Loan Scheme which allows people to borrow against the value of their homes from the government.

It currently allows part-pensioners to borrow up to 100 per cent of the age pension every year until the loan equals the value of their home.

But the budget significantly expands it by allowing full pensioners to participate. They will be able to borrow up to half the value of the pension annually and so boost their incomes by $11,799 (singles) or $17,787 (couples) per year until the loan reaches the value of their home.

“Something like this was recommended by the Productivity Commission back in 2011,” Mr Yates said.

The payments are drawn down fortnightly and aren’t taxed or means-tested so they don’t affect pension entitlements. Interest on the debt is an attractive 5.25 per cent and the overall debt is paid by the estate when the person dies.

While that’s good for pensioners, the changes are more generous to those with more money.

Older Australians
Retirees will get the chance to grow wealth via government loans. Photo: Getty

Self-funded retirees can withdraw 150 per cent of the pension, and part-pensioners can withdraw between 50 per cent and 150 per cent of the pension with payments rising with their wealth and reaching 150 per cent when they no longer draw a pension.

The budget papers costed the measure at $11 million, but that’s just to cover the administration. The actual value of the loans is not estimated because “it’s a loan by the government that is repaid, not a cost”, Mr Yates said.

While there is no limit to the scheme set in the budget “I don’t expect thousands of people to be rushing to take it up in the first year”, Mr Yates said.

Paul Versteege, policy co-ordinator with the Combined Pensioners and Superannuants, said the government would limit the scheme “because they couldn’t take the risk on all those mortgages”.

Mr Yates said the scheme would more likely be used to pay for “major” expenses like aged care and health costs than “living expenses”.

Another budget measure, the Pension Work Bonus, will boost the amount pensioners are allowed to earn without affecting their pension entitlements from $250 to $300 a fortnight on an annualised basis. That allows people to do bursts of intense work and spread the income over the year.

“That could be a significant advantage because people living on $23,000 a year could earn another $7800,” Mr Yates said.

While Mr Versteege said he supported the scheme, he saw it merely as a catch-up.

“It was launched back in 2009 and hasn’t been increased,” he said.

“If you don’t index these things they erode over time.”

Other budget measures aimed at retirees include a relaxation of the work test for superannuation contributions the year after retirement for people with a maximum of $300,000 in their super funds.

It means the year after they retire, they would be able to make a total of $100,000 in non-concessional contributions and $25,000 in concessional contributions for up to the last five years.

Another measure will see self-managed superannuation fund audits mandated every three years instead of yearly now. The government has committed to spending $20.2 million to adjust pension means-test rules to encourage the use of annuities.

The new measures begin in July 2019.

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