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Factsheet IS116 - Pension Loans Scheme

Purpose

This Factsheet explains what the Pension Loans Scheme is, what the eligibility criteria are and how you can apply for a loan.

What is the Pension Loans Scheme?

The Pension Loans Scheme provides fortnightly income payments at a reasonable rate of interest to people who receive a reduced rate of income support pension, or do not receive any income support pension because of the income or assets tests. The payments may be made for a short period of time while the person’s income and assets are being rearranged or may be made for an indefinite period.

A loan under the Pension Loans Scheme can be repaid in full or part at any time. The full amount of the loan plus interest owed at the time of the death of the person will be recovered from the person’s estate.

Who is eligible?

To be eligible for a loan under the Pension Loans Scheme you need to meet the following criteria:

  • be a veteran, or the partner of a veteran, who has reached the applicable pension age and is eligible for service pension;

or

  • be a war widow/widower who has reached qualifying age and is eligible for ISS; and
  • receive less than maximum rate of income support pension or no pension, but be notionally assessed under either the income or assets tests at a rate greater than nil; and
  • have sufficient property in Australia that you can offer as security for the loan.

What is pension Age?

If you are a veteran who has qualifying service or a war widow or widower, you may be eligible under the Pension Loans Scheme if you are 60 years of age.

If you are the partner of a veteran, you may be eligible under the Pension Loan Scheme when you reach pension age, as per the table below:

Male and female non-veterans
If your date of birth is on or between: Then your pension age is:
Before 1 July 1952 65 years
1 July 1952 to 31 December 1953 65 years and 6 months
1 January 1954 to 30 June 1955 66 years
1 July 1955 to 31 December 1956 66 years and 6 months
On or after 1 January 1957 67 years

What is qualifying age?

For participation in the Pension Loans Scheme, qualifying age only applies to war widows and widowers receiving ISS. Qualifying age is the same age as pension age for a veteran with qualifying service, i.e. 60 years.

Working out the pension rate

The amount of pension you receive depends on your income and assets. The pension is calculated under two separate tests — the income test and the assets test. The test paying the lower rate of pension is the one that is applied.

If you are paid no pension you are either ineligible or not payable. If you are not payable, it is because of the effect of either the income test or the assets test. Even if you are paid no pension you may still be eligible for Pension Loans Scheme. The Department will work out if you are eligible for the Pension Loans Scheme but generally if you have high assets and low income you may be eligible.

How much can I be paid each fortnight under the Pension Loans Scheme?

Under the Pension Loans Scheme you can receive fortnightly payments which top up your current pension amount (whether you receive some pension or nil pension) to the maximum rate of pension which applies to your circumstances. This rate includes allowances such as rent assistance. If you do not wish to receive the maximum amount of loan which can be paid to you, you can nominate a lower amount.

The loan amount each fortnight is the difference between the pension you would normally receive (if any) and the amount you receive when your pension has been increased under the Pension Loans Scheme.

Example 1: John is a single pensioner who currently receives $120 service pension per fortnight. The maximum loan he can be paid each fortnight under the Pension Loans Scheme is as follows:

Maximum single rate service pension $926.20
Less service pension John receives $120.00
Equals amount of loan payable $806.20     

John can receive a loan of up to $806.20 per fortnight. This is in addition to the $120.00 of service pension he already receives.

What is the total amount of loan I can receive?

The total amount of loan you can receive depends on the value of the property which you offer as security for the loan, the equity you wish to keep in the property and your age at the time the loan is granted. You may offer the whole value of your property as security for the loan, or you may wish to keep some equity in the property. The amount of equity you wish to keep in the property is called the guaranteed amount. This is the amount you would like kept aside from the total value of the secured property. The guaranteed amount is not included when we decide your total loan amount. For example, if your property is valued at $150,000 and you request that $90,000 be left as the guaranteed amount, $60,000 is used in deciding what your total loan amount can be.

When your total loan amount is reached, payments of the loan to you will stop. You will be asked if you wish to change the value of your guaranteed amount or rearrange your financial assets in order to continue in the Pension Loans Scheme.

What can I use as security for the loan?

You can offer any real estate which you own in Australia as security for the loan. This includes the home in which you live. When you apply for the loan, the property which you choose to be used as security is valued by the Australian Valuation Office. If the loan is approved, the property will be valued annually during the life of the loan.

A debt to the Commonwealth is registered against the property or properties which you offer as security for the loan. This is done by the Commonwealth placing a charge on the property. The cost of placing the charge must be paid by you. This can be paid up front or can be added to the loan amount.

How is interest calculated on the loan?

Interest is calculated on a fortnightly basis each pension pay day. Interest is calculated on the amount of loan payments you have received plus previously accrued interest, less any repayments made.

The interest rate is set by the Minister for the Department of Social Services and is published in the Australian Government Gazette.

Will the loan be recovered when I die?

If there is an outstanding debt at the time of your death, we usually enforce the charge on the real estate and recover the debt immediately. Interest will continue to accrue and forms part of the debt from the date of death until the debt is repaid.

What happens if I have a surviving partner?

If your spouse is also eligible for loan payments and wishes to keep receiving them, payments will continue and recovery of the debt may be deferred until their death. On the death of the surviving partner the charge on the real estate is usually enforced immediately and action taken to recover the debt from the estate.

If your surviving partner is under pension age, the loan debt may be recovered after the bereavement period. If your surviving partner has reached pension age and is using the property which secured the loan, the debt may not be recovered until after their death.

Am I eligible for a Pensioner Concession Card or treatment benefits?

If you are entitled to any payment under the normal income and assets tests, you are eligible to receive a Pensioner Concession Card. However, if the whole amount of pension you receive is under the Pension Loans Scheme, you will not be eligible for a Pensioner Concession Card.

You are only eligible for treatment benefits if you qualify under the normal income and assets tests or as a disability pensioner (see Factsheet HSV59- Eligibility for the DVA Health Card All Conditions (Gold) or Totally & Permanently Incapacitated (Gold)). Payments made under the Pension Loans Scheme do not, of themselves, entitle you to treatment.

Is the loan subject to income tax?

Any payments you receive under the Pension Loans Scheme are not subject to income tax.

How do I apply for a loan?

To apply for a loan under the Pension Loans Scheme you need to complete the form D2662 Pension Loans Application. If you have not previously applied for an income support pension you will also need to fill out a full claim form for service pension or income support supplement. These forms are available from DVA.

If you apply for a loan under the Pension Loans Scheme you may be interviewed by a DVA officer to ensure that you are aware of the terms and conditions associated with payment of the loan and its recovery.

More Information

DVA General Enquiries

Phone: 1800 555 254 *

Email: GeneralEnquiries@dva.gov.au

DVA Website: www.dva.gov.au

Factsheet Website: www.dva.gov.au/factsheets

* Calls from mobile phones and pay phones may incur additional charges.

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Disclaimer

The information contained in this Factsheet is general in nature and does not take into account individual circumstances. You should not make important decisions, such as those that affect your financial or lifestyle position on the basis of information contained in this Factsheet. Where you are required to lodge a written claim for a benefit, you must take full responsibility for your decisions prior to the written claim being determined. You should seek confirmation in writing of any oral advice you receive from DVA.

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20 March 2019