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Michelle Bromley CFP®, Director – Strategy and Advice

Asset rich but cashflow poor? The Centrelink Home Equity Access Scheme is now available to a broader range of retirees as an alternative to taking out a Reverse Mortgage or Equity Release product.

• Supplement your income
• Over Age Pension age
• Own a property in Australia
• Paid as a fortnightly payment
• Limited to a maximum loan
• Up to 150% of full Pension rate
• Is not taxable income
• Interest rate 3.95%

The Home Equity Access Scheme can be used if you need to supplement your retirement income to meet your ongoing living needs.  It provides a non-taxable fortnightly loan of up to 150% of the prevailing Age Pension maximum payment rate.

To qualify, either you or your partner need to:

• Be eligible to receive a qualifying pension from Centrelink, such as the Age Pension, Disability Pension or Carer’s Pension.

• Be Age Pension age (currently 66 years and 6 months).

• Own a property in Australia that you have sufficient equity in to secure the maximum loan amount against.

• Have the property adequately insured.

• Neither you, or your partner, can be bankrupt or insolvent.

While one of you must be eligible to receive the Age Pension, even if you don’t receive a payment e.g., because you own assets above the maximum asset test threshold, you can still access a fortnightly payment of up to 150% of the full Pension rate.

Because the maximum is 150% of the full Pension rate, if you are currently receiving the full Age Pension then you can get an extra 50% of the full Pension rate.

Although paid in fortnightly instalments, you can get an advance payment of up to twenty-six fortnights as a lump sum. The amount is an assessable asset with an assets test exclusion period of 90 days.

Centrelink have set a maximum loan amount that you can access which limits the total amount you can receive under the scheme.

The maximum loan amount is calculated by multiplying the ‘Age Component Amount’ by the ‘Loan Security’ and dividing by 10,000.

For example, Mary is age 67 and has $500,000 equity in her home. She doesn’t want to put the full value of her home at risk and so decides to offer 50% of her home value as security. Mary can access a total Pension Loans Scheme payment of $68,500.

There are costs to establish the loan, and costs to discharge (repay) the loan. You must pay interest on the loan at the rate set by Centrelink, which is currently 3.95%pa.  Interest is compounded – added to the value of the loan – and repaid when you discharge the loan.

For example, Mary currently receives the full Age Pension of $987.60 pf, and the Home Equity Access Scheme increases this by $493.80pf. Mary can receive this additional payment for around 4 years and 10 months until the total of payments received plus interest reaches her maximum loan amount of $68,500.

You can make a partial or full repayment of the loan and accumulated interest at any time, but the outstanding amount must be repaid if you either sell your home, or on your death.

Repayment of the loan following your death may be deferred if your partner is both Age Pension age or older and still living in the property.

A ‘no negative equity’ guarantee applies, meaning you won’t repay more than the equity you hold in the property when you repay the loan (provided you haven’t subsequently taken out another loan elsewhere).

The easiest way to apply is online through your myGov account linked to Centrelink. You’ll need to prove your identity and provide some supporting documents such as a title search, rate notice and insurance policy for the property.

What to do?

If you want to explore your eligibility for the Home Equity Access Scheme you can use Centrelink’s eligibility tool which then links into the Centrelink  Home Equity Access Scheme calculator.  As the scheme is uniquely operated by Centrelink, please contact them directly on the Older Australians line at 132 300 if you have any questions.

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.