Scott Morrison opens up mortgage loan scheme to help elderly fund their own retirements

The overhaul of the scheme, which provides older Australians with non-taxable fortnightly loans and lump-sum payments using real estate as security, is expected to boost take-up.

Scott Morrison’s government will slash the pension loan scheme’s interest rate from 4.5 to 3.95 per cent on January 1. Picture: Andrew Henshaw

Scott Morrison will help senior Australians fund retirement by unlocking the value of their home under a revamped reverse mortgage scheme to be unveiled in Thursday’s mid-year budget update.

The overhaul of the pension loans scheme, which provides older Australians with non-taxable fortnightly loans and lump-sum payments using their real estate as security, is expected to dramatically boost take-up of the cashflow support program.

The government has rebranded the scheme as the home equity access scheme to increase awareness that it is open to all Australian property owners who have reached age pension age and not only pension recipients.

With rates at record lows, the government will slash the scheme’s interest rate from 4.5 to 3.95 per cent on January 1 to lower borrowing costs and give senior Australians access to loan payments for longer.

Additional changes to the scheme, announced in the May budget and subject to legislation passing through parliament early next year, will allow property owners to receive lump-sum advance payments from July 1. Home-owning seniors aged 66 and over will be able to receive two lump-sum payments in a year capped at 50 per cent of the annual age pension rate.

Anne Ruston. Picture: Bianca De Marchi

Ahead of next year’s election battle to win the retiree vote, Social Services Minister Anne Ruston said the nation’s 3.8 million senior Australians should be given “more choice and control of their retirement lifestyle”.

“We want to give older Australians more confidence to tap into home equity to enhance their retirement living standards,” Senator Ruston told The Australian.

“We know many older Australians have worked hard to accumulate wealth in the form of real estate equity.

“The scheme can help people access this equity to supplement other income and improve overall wellbeing in retirement. The lower interest rate, together with the upcoming enhancements, will make the scheme an attractive option for many retirees looking for a boost in their income.”

The updated scheme follows last year’s Retirement Income Review, which suggested senior Australians could substantially improve their retirement incomes by tapping into a small proportion of their home equity.

Since 2019, the scheme has grown from 768 participants to almost 5100 but the government expects the overhaul will significantly increase access to it.

The lower interest rate offered by the government compares with available commercial reverse mortgages for owner-occupied homes, which range between 5 and 5.6 per cent.

Under the scheme, seniors can access up to 150 per cent of the maximum rate of the age pension via fortnightly payments. If a person is on the age pension, they can use the scheme to top up their rate of payment, while self-funded retirees can also access payments to boost their income streams.

Changes announced in the May budget include the introduction of a “no negative equity guarantee” for loans and immediate access to lump sums.

Eligible participants will be able to receive a “maximum lump-sum advance payment equal to 50 per cent of the maximum age pension”, which is estimated to be around $12,385 per year for singles and $18,670 for couples.

For seniors who don’t want a single payment, a maximum of two advances totalling up to the cap amount are permitted per year.

Senator Ruston said the government was focused on unlocking “new and innovative ways to support age pensioners and self-funded retirees”.

“The scheme is available to all Australians who have reached age pension age – that includes people who are part-pensioners and self-funded retirees – which is why we are changing the name to the home equity access scheme to make it more inclusive,” she said.

“The popularity of the scheme has grown more than five-fold in less than two years as our expansions to the scheme have allowed more retirees to tap into the equity tied up in their homes to pay for their living expenses.”

Following the budget, Association of Superannuation Funds of Australia chief executive Martin Fahy backed changes to the pension loans scheme to “improve living standards in retirement for those who choose to use (it)”.

“Broader innovation in reverse mortgage products has the capacity to improve consumer outcomes by increasing competition and lowering costs,” Dr Fahy said.