Older Australians should consider a little-known pension loan scheme and their own asset taper rates to maximise their income in retirement, says Rice Warner chief executive Andrew Boal.
Speaking on Market Narratives, a podcast series hosted by Investment Magazine’s head of institutional content Alex Proimos, Boal said recent changes to the scheme allowed most Australians access to an increased age pension for a decent life in retirement.
“I think we have bigger problems coming into retirement and that is encouraging people to spend enough money,’’ Boal said.
Australians eligible to receive the age pension who own property as a guarantee can now enter the scheme, which allows them a non-taxable fortnightly loan to supplement retirement income up to 1.5 times the maximum pension rate.
This is $36,000 for a single person or $54,000 annually for a couple.
“The reason I became aware of it again is it has been upgraded recently,’’ Boal said. “Before July 1, 2019 you were only entitled if you were on the age pension, now they’ve extended it to all Australians – it says you have to be eligible
for the age pension… if you’re an Australian tax resident.”
Boal said the debt is accumulated against the value of the home and is paid back to the government after death with the remainder paid to the estate.
“A couple can get a $54,000-a-year age pension which is getting close to the comfortable level for a couple,’’ Boal said. “Some people in government are surprised that the Pension Loan Scheme isn’t taken up more. Once all this clarification is out there that it is available and people should look into it.”
Inversely, a rising number of single Australians currently renting at retirement, in a low interest rate environment and volatile markets, should consider spending their superannuation nest egg on a home and receive the pension, Boal said.
“Private rental has gone through the roof and the rental assistance scheme has fallen well behind private rental rates, so if you’re a single retired renter, you’re probably doing it pretty tough,’’ Boal said.
To listen to the recorded interview with Andrew Boal on the Market Narratives podcast click above or find the series on Apple Podcasts, Google Podcasts or Spotify.
“If they had accumulated $1 million in super would they be better off buying a two-bedroom apartment with $600,000 and immediately becoming eligible to get a full age pension and then spending down by getting a reverse mortgage or a pension loan scheme to top up income.
“The homeowner is exempt from the asset test and they would be eligible for the age pension from day one.”
While interest rates were low and markets uncertain, self-funded retirees not on the age pension were bearing the full consequences on their assets and income. However, Australians “in the middle” on a part age pension have seen recent asset falls impact their taper rate with the age pension providing a natural hedge.
Boal said recent changes to asset taper rates and legislated rises in the Super Guarantee to 12 per cent by July 2025 would allow the Australian government to control the cost of its ageing population through its means-tested pension system.
“You look at those costs and they are going through the roof most in double digit percentage points around the world,’’ Boal said.
Most recent changes to the taper rate mean pensions will be 2.5 per cent of Australian GDP by 2060 with “everyone else at 10 per cent or higher”.
“Even though a high percentage of Australians will be eligible for some aged pension it won’t be as much as it would otherwise have been and that’s a huge saving for taxpayers over time,’’ Boal said.