The federal government has confirmed that money borrowed from the Pension Loan Scheme will not count as assessable income, clearing up uncertainty for people hoping to use it to stay in their homes for longer or access home care while waiting for a package.
Aged Care Steps director Louise Biti says the organisation sought clarification from the health department following confusion about the scheme.
“There was some confusion that (money borrowed under the PLS) would have counted as assessable income for determining either age pension entitlements or aged care fees and created disparity with commercial equity schemes,” she told Community Care Review on Friday.
“We checked and … the Department of Health came back to us yesterday and said it is absolutely not assessable income. “
The PLS is currently restricted to part pensioners and some self-funded retirees, but in the May budget the government announced plans to extend it to full pensioners from July 1, 2019.
If passed, the new legislation will enable people over pension age who can offer real estate as security to borrow fortnightly income up to 150 per cent of the maximum age pension at a rate of 5.25 per cent.
It operates under the same principle as a reverse mortgage except in the case of the PLS, the government is the lender. The PLS excludes lump sums, and limits the amount that can be borrowed in proportion to the size of the pension. However, the interest rate is lower than both commercial rates and turning a RAD into a DAP.
Help for people on home care wait lists
Ms Biti said the extended scheme could help people stay in their homes and pay for home care or residential care of a spouse.
“When we look at the stories around home care there’s a large waiting list,” she said.
“People can take the option of just paying for home care while they wait but they often don’t have access to a lot of money to do that.
“This gives you the ability to take a bit of equity out of your house, pay for some private home care while you wait for the government subsidies to come through and when they come through if you con’[t need to keep paying for it then you can stop the borrowing.”
National Seniors’ Basil La Brooy, of the organisation’s financial information desk, said loan payments had never been treated as income by the government in assessing pension payments, and National Seniors had not anticipated any change to this situation.
He said changes to eligibility would improve access to the scheme for the some 1.8 million age pensioners that owned their own homes.
“This is definitely a positive step to allow older people who are ‘asset rich and cash poor’ to access more money for day-to-day living.
Need to get the message out
COTA’s Ian Yates said the PLS fact sheet made it clear that income from the scheme was not subject to means testing unless it was saved up, in which case it could affect assest tests.
But he said more could be done to promote the scheme by both advisers and the providers.
“There is no financial incentive for Financial Planners to promote it to clients, so government needs to put some resources into an ongoing communication strategy,” he told Community Care Review.
“Aged care providers should also promote it as a great way for people to generate the income to meet co-payments and pay for additional services.”
Ms Biti also expressed concern that only certain authorised advisers or Centrelink financial information services could provide advice on the PLS.
Aged Care Steps provides training and support specific to aged care to the financial advice community including advisers, lawyers, accountants.
Read more about the PLS here.