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Thursday, 2 December 2021
Page: 11343


Mr TAYLOR (HumeMinister for Industry, Energy and Emissions Reduction) (10:35): I move:

That this bill be now read a second time.

The Morrison government is increasing the flexibility of the Pension Loans Scheme to give our senior Australians more choices in their retirement.

The Retirement Income Review highlighted that accessing a portion of a person's home equity can greatly improve their living standards in retirement. This is particularly true for those senior Australians who hold substantive assets but have limited income.

Around 80 per cent of those over the age of 65 are home owners, with many of our senior Australians having significant equity in their home or other real estate assets.

The Pension Loans Scheme gives our senior Australians another option for using their accumulated wealth to support their retirement lifestyle.

Participation in the Pension Loan Scheme is voluntary and the scheme is similar to a reverse mortgage product.

It provides senior Australians the option of drawing a fortnightly loan amount, backed by the equity in their home or other real estate assets, to supplement their other retirement income.

Through the scheme, pensioners can top-up their pension payment with loan payments up to a maximum of 150 per cent of the fortnightly rate of the age pension. Eligible non-pensioners, such as self-funded retirees, can receive the full 150 per cent of the fortnightly rate of the age pension in loan payments.

The Morrison government enhanced the Pension Loans Scheme in the 2019-20 budget by expanding its eligibility to all older Australians of age pension age and increasing the maximum allowable fortnightly combined pension plus loan from 100 per cent to 150 per cent of the rate of the age pension. This allowed maximum rate pensioners to participate in the scheme for the first time.

Since those changes came into effect on 1 July 2019, the number of participants in the scheme as at 30 September 2021 has grown from around 780 to over 5,000. This sixfold increase in two years demonstrates that the scheme is meeting the needs of our senior Australians.

This bill will introduce two additional features to the Pension Loans Scheme to further increase flexibility and confidence in the scheme for those senior Australians who choose to use it. These measures will come into effect on 1 July 2022.

Firstly, a 'no negative equity guarantee' will apply to all Pension Loans Scheme participants. It will mean that, when scheme participants settle their debt, they will not repay more than the equity they have in the property used to secure their loan.

Introducing a no negative equity guarantee brings the Pension Loans Scheme in line with an obligation placed on private providers of reverse mortgage products, who have been required since 2012 to provide a no negative equity guarantee to users of home equity products.

The no negative equity guarantee will provide additional confidence to participants of the Pension Loans Scheme. It builds upon the strong safeguards already in place to minimise the possibility of a participant's debt exceeding their secured equity.

These safeguards include:

conservative age-based loan-to-value ratios, which restrict the total amount that can be borrowed through the Pension Loans Scheme according to a person's age and available equity; and

limits on the amount a person can receive, which remains capped at 150 per cent of the maximum fortnightly rate of pension.

Secondly, participants of the Pension Loans Scheme will be able to access a portion of their payment as a lump sum advance.

This option to choose a lump sum advance will give retirees greater flexibility and a new mechanism to help them meet unexpected and/or substantial expenses.

The maximum lump sum advance will be capped at 50 per cent of the maximum fortnightly rate of the age pension over 26 fortnights.

Based on current age pension rates, the maximum advance payment over a 26-fortnight period will be around $12,580 for singles and around $18,960 for couples combined.

Any advance taken will reduce the amount of fortnightly Pension Loans Scheme payments a participant can receive.

Participants will be able to take up to two advances in any 26-fortnight period, with the combined total limited by the 50 per cent cap.

Consequently, the maximum amount a participant can receive in loan payments will generally be the same irrespective of whether they take an advance payment, fortnightly payments or a combination of both.

These measures will ensure that participants do not build up excessive debt balances, while providing them flexibility and choice in how they tap into the equity of their real estate assets.

To complement the introduction of these new measures, the Morrison government will embark on a campaign to raise awareness of the Pension Loans Scheme.

Although the Pension Loans Scheme has operated since 1985, awareness among our senior Australians remains low and there remains a misconception that only those receiving the age pension can access the scheme.

While participants need to be of age pension age, they do not actually need to be receiving a pension payment in order to qualify for the scheme.

The awareness-raising campaign will help our senior Australians improve their understanding of the scheme, and the new features can be used to improve their living standards in retirement.

Home ownership has always been the bedrock of our society. This bill will give our older Australians more confidence to tap into a small proportion of their home equity to increase their retirement outcomes.

We want our senior Australians to enjoy greater choice, financial independence and quality of life in their retirement years.

I commend this bill to the House.

Debate adjourned.