Pensioners raid government reverse mortgage scheme

In the May 2021 Budget the Morrison Government broadened eligibility to the Pensions Loan Scheme (PLS): the government sponsored reverse mortgage scheme that allows retirees to borrow up to 150% of the aged pension rate against the equity in their home and is open to all retirees (not just pensioners) over the age of 60.

Thus, a full rate pensioner can receive a maximum income top-up that is equal to half of the age pension, whereas a self funded retiree can receive a maximum payment that is equal to 1.5 times the full age pension.

The budget changes appears to have had the desired effect with participation in the PLS increasing five-fold over the past two years:

Just 768 people had accessed the scheme at the end of the 2018-19 financial year but their numbers swelled to 4039 by the end of March this year…

Figures cited by the academics show about two-thirds of PLS participants at the end of last year were full-rate pensioners, with most of the rest part-pensioners. Uptake by self-funded retirees is relatively small.

“The Pension Loans Scheme plays an important role, as the family home is typically a retiree’s largest financial asset,” the UNSW authors say.

The biggest barrier precluding use of the PLS is the 4.5% interest rate charged, which is lower than commercial reverse mortgages but far higher than mortgages used to purchase homes:

Average mortgage rates

Average mortgage rates are much lower than the PLS.

The federal government should probably reduce it to around 3.5% given the sharp decline in market mortgage rates and the ultra-low borrowing rates on government bonds.

Unconventional Economist


  1. Should really be 3%.

    The bigger issue is that the rate is hard code into legislation, it doesn’t move as rates change.

  2. 4,039 people taking it up is absolutely trivial compared to the millions of retirees. Someone who did this commented here on another thread that the interest rate is “f”n usurious”, especially considering that it is a risk-free loan. If one or both of the borrowers live for a long time, the interest bill can blow out to an amazing extent, even after they have so little left that they qualify for the full pension. On balance, mike179 is probably right about the discouragement to downsizing, although if people are able to move somewhere much cheaper, they might prefer this to going on with the snowballing of interest.

    • 100% Where does the average pensioner move that’s cheaper?? Lots of folk would move mythical somewhere cheaper land if it existed:))

      • Im guessing that those who take part are not in the Prime spots envied around MB readers and on that basis most will be in the poorly ammenitied outburbs with no where to move down to. Flats are rarely appropriate even if available in the first place.

  3. First question is why is the Government becoming a bank – It sold CBA back in the early ’90’s.

    Second question – if Government remains in the banking industry, why should it reduce its lending rate when tax payers are actually funding the lending and should get a return equal to other non-servicing products.
    Remember there are no repayments on the loan until the final payment. It doesn’t require regular repayments like other standard home loans