Costings reveal Pension Loan Scheme could unlock billions for retirees

New costings from the Parliamentary Budget Office show the government could help retirees boost their own incomes at nearly no cost to the budget by making the Pension Loans Scheme (PLS) available to all who wish to use it. 

The costings complement research by The Australia Institute which made the economic case for expanding the PLS. 

Senators Nick Xenophon, Glenn Lazarus, Jacqui Lambie and Ricky Muir called for the PLS to be expanded in May this year. 

Costings requested by Senator Lambie and released today show expanding the PLS could help retirees unlock more than $2.8 billion to boost their retirement incomes at an initial cost to the budget of only $23 million over the estimates period, and a positive budgetary impact in later years. 

“The Budget Office have costed this proposal in detail, and what’s clear is that retirement incomes could receive an enormous boost for a relatively negligible government cost,” Tom Swann of The Australia Institute said. 

“What’s unusual is that we’re not even talking about a new scheme. The PLS is long-running, but little known – what’s needed is for it to be promoted and made more widely available. 

“By allowing retirees to unlock their home equity on a voluntary basis and draw a fortnightly income through loans secured against their house, many Australian retirees can choose to boost their incomes to ensure a comfortable retirement, while living in their own home. 

“Scott Morrison said he wanted retirement income reform to look at helping retirees unlock home equity. Reforming the PLS is now a costed, reasonable option on the table. 

“The PLS interest rates are set below market rates, making them an attractive way for retirees to unlock home equity while they live in their home. The loan balance is settled once the house is sold. 

Currently only those who are not eligible for the pension can access the PLS. In addition, maximum fortnightly payments are capped at the full aged pension rate.

What do the costings show? Because PLS payments are loans secured against property, they can be offered at little cost to the government, and yet also at below market rates. 

While the PBO costing notes it is very difficult to estimate uptake of the voluntary scheme under the changes, its costings show that whatever the uptake it could be done at low cost. Higher uptake is likely to reduce administrative overheads further. 

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