If you’re planning for retirement or recently retired, it can be a good idea to explore all the income options available to support your changing lifestyle – including one called the Pension Loans Scheme or PLS. While not every retirement income option will suit your personal needs, it pays to do a bit of research so you don’t miss an opportunity to supplement your Government Age Pension payments and super savings.
The Pension Loans Scheme is not the same as a reverse mortgage
While taking out a reverse mortgage and applying for the PLS are both ways to turn the value of your home into an income stream there are big differences between the two.
A reverse mortgage lets you borrow a lump sum, using your house as security against the loan. You have to make repayments while you live in your home, and interest is added to the full loan balance.
With a reverse mortgage, the income or capital you receive comes from a financial institution, such as a bank or lender.
The PLS lets you draw an income from the equity in your home over time, there’s no lump sum payment. You accrue interest on the income as you receive it until you pay off the loan. You can also choose to stop receiving PLS income at any time if your needs change – you’re not locked in. The loan can be repaid in part or in full at any time and you don’t actually have to repay anything until you exit the scheme which happens if you choose to pay off the loan, or if you pass away.
Repaying the Pension Loans Scheme
Repaying the money you receive through a PLS loan can be done in part or full whenever you’re ready or able, and any balance owing is taken from the value of your property if you choose to sell it, or when you and your surviving partner pass away.
The income you’ll receive comes from the Australian Government - the same place as your GAP payments.
When it comes to the PLS, the Government is responsible for setting the interest rate, which currently sits at 5.25% per annum1. Compound interest is calculated fortnightly on the amount you’ve been paid to date - not the total amount you’re eligible to receive over time.
If you’re a member of AustralianSuper, you have access to professional financial advice on a fee-for-service basis. Call 1300 300 273 and ask to speak with an advice team member to arrange an appointment, or find an approved adviser.
This information is general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.