Finance Your Super Ask the Expert: Retiring overseas and using the Pension Loan Scheme

Ask the Expert: Retiring overseas and using the Pension Loan Scheme

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Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question: I have recently retired and am thinking about moving overseas for a few years to spend more time with some family who I didn’t get to see much over the last few years, but I’m worried this will affect my age pension.

I have paid taxes all my life, so I now want to ensure I get the age pension.

Answer: Generally, to be eligible for the age pension, on the day of lodging your claim form, you must reside in Australia and be one of the following:

  • An Australian citizen
  • A holder of a permanent visa
  • A holder of a Special Category Visa.

In addition, to qualify for the payment, you have to meet the qualifying residence criteria. For the age pension, this is generally:

  • To have been an Australian resident continuously for 10 years in the past, or
  • To have been an Australian resident for two or more periods that in total exceed 10 years, and
  • At least one of those periods is of five years’ duration or more.

The age pension can be paid to a person residing overseas indefinitely.

If you have 35 years or more working life residence in Australia, then your payment should not be affected apart from some supplements.

However, if you have less, then you may only be paid a proportional amount, depending on how many years you worked in Australia.

It’s also worth remembering that when determining the rate of pension payable to a person residing permanently overseas, your income and assets are assessed under the normal Centrelink rules.

Alternatively, if you are a resident of a country that has an international agreement with Australia, you may be able to claim the Australian age pension while residing in the agreement country.

To claim under an international agreement, you must meet the eligibility requirements for an age pension such as:

  • Reached the age pension age
  • Have 10 years qualifying residence in Australia.

If you reside in a country that has an international agreement with Australia, many agreements provide for residence in the agreement country to count as residence in Australia for the purposes of meeting the ‘qualifying residence’ criteria.

Australia presently has 31 international social security agreements. These agreements are bilateral treaties that close gaps in social security coverage for people who migrate between countries.

Centrelink will be able to provide information on your specific situation.

Question: I am retired, live mainly on the age pension and have a small super pension. I own my home that I have lived in for over 25 years. I don’t want to move but I need some additional income and a friend told me about a government reverse mortgage scheme. Is this a good system?

I need more money to live on, but I don’t want to sell my house.

Answer: Centrelink does have a type of reverse mortgage called the Pension Loan Scheme, where the loan is secured against Australian real estate, normally your principal home but it could also be an investment property.

The scheme allows individuals to “top up” their age pension. The overall maximum amount of “top-up” payments is 150 per cent of the maximum rate of age pension.

For example, the current maximum fortnightly rate (October) of the pension loan scheme payment for a single is $1416 and $1068 for each member of a couple.

However, the actual limit depends on your age, how long you intend to receive payments, whether you are single or partnered, the value of your home and the rate of age pension you currently receive. These parameters ensure you do not have to pay back more than your home is worth.

As well as having to own Australian real estate, you must meet the following conditions to join the Scheme:

  • Meet residency requirements for the Age Pension – have lived in Australia and be an Australian citizen, permanent resident and/or a special category visa holder for at least 10 years including five years of continuous residence
  • Be aged at least:
    • age pension age
    • or if a veteran with qualifying service, a war widow or widower, be at least age 60.

From July 1, 2019, applicants have no longer needed to meet the income or asset test.

The current interest rate on the loan is 4.5 per cent per annum. The loan can be stopped and/or repaid at any time. In reality, the loan is generally repaid once the home is sold.

The Pension Loan Scheme has been under-utilised in the past. However, it does provide a valuable source of additional income for many older Australians and is definitely worth considering.

A couple of other things to note is that it only provides fortnightly payments and not lump sums, and if you do proceed, ensure you let your beneficiaries know otherwise they will be in for a shock if you pass away and they are unaware of this debt.

It is recommended that you seek independent legal or financial advice before applying for a loan under the Pension Loans Scheme.

You can also speak with a representative of Centrelink’s Financial Information Service.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.  

CORRECTION, NOVEMBER 4: A previous version of this article incorrectly stated that Australians must be eligible for the age pension under either the income test or asset test to access the Pension Loan Scheme.

From July 1, 2019, applicants have no longer needed to meet the income or asset test.