Today's announcement that people of pension age will be even more able to part-fund later life costs by unlocking the value of their home under an enhanced equity release scheme, is welcome news for older Australians.
In Thursday's mid-year budget update (MYEFO), the Federal Government will formally announce further improvements to the pension loans scheme, which allows older Australians to access non-taxable fortnightly loans and lump-sum payments using their real estate as security,
The scheme will be rebranded as the 'Home Equity Access Scheme' to better reflect that since the 2018 More Choices for a Longer Life Budget package the scheme has not been restricted to pensioners but can be used by anyone of pension age.
COTA Australia Chief Executive, Ian Yates, said the new changes will further enhance a scheme that is being increasingly used by many older Australians to supplement other sources of income in retirement or to fund extra support and care, or to make home modifications.
"This enhanced scheme will make a positive difference to a growing number of older Australians looking for ways to better fund their retirement," Mr Yates said.
"News that there will be a reduction in the scheme's interest rate from 4.5% to 3.95% – which will lower borrowing costs and reduce the draw down on the home's value – will also be seen as an early Christmas present for those using the scheme.
Mr Yates said the revamped scheme builds on the findings of the Retirement Income Review which showed that many older Australians could tap into their home equity to unlock cash for an improved standard of living in retirement.
"Assisting those older Australians who wish to safely access their substantial equity in their homes will mean access to funds to enable people to live a more comfortable retirement which they can afford, and they deserve.
"Some of the changes, including the intention to permit lump sum payments, are subject to legislation passing in February, so we ask all parties will assist smooth passage through parliament so that older Australians can start reaping the benefits.
"Retirees can have access to 150% of the annual age pension on a fortnightly basis, and lump sums up to 50% of the annual pension if needed for either unexpected or planned expenses. This is about giving people greater options in retirement, but it's up them if they want to use the scheme."
Mr Yates said it is very important to recognise the need for independent financial advice to determine if this is the best solution for your circumstances. A helpful calculator for eligibility and the amount you can receive is available at www.servicesaustralia.gov.au/pension-loans-scheme
