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Home / In retirement / Income in retirement / What is the Pension Loans Scheme, and how does it work?

What is the Pension Loans Scheme, and how does it work?

September 2, 2020 by Janine Mace 1 Comment

Reading time: 5 minutes

On this page

  • What is the Pension Loans Scheme?
  • How does the PLS work?
  • How much can I borrow?
  • How to calculate the maximum loan amount
  • Maximum loan calculator amount calculator
  • 10 key facts about the new Pension Loans Scheme

With interest rates at rock bottom and investment markets continuing to be volatile, many retirees are looking for ways to boost their retirement income.

If you’re eligible, the federal government’s Pension Loans Scheme (PLS) could be a worthwhile option to boost your regular retirement income or pay for expenses like home care.

So, check out SuperGuide’s detailed guide to how the PLS works.

What is the Pension Loans Scheme?

The PLS is a reverse mortgage style loan offered by the federal government that allows borrowers of Age Pension age to receive a tax-free fortnightly income stream by taking out a loan against the equity in their home.


Good to know: A reverse mortgage works a little like a home loan in reverse. It’s a loan that allows you to borrow money against the equity (or value of a property less any mortgage debt) you have in your home.

Borrowers are required to pay interest on the loan but regular repayments are not required and, instead, are added to the loan amount. You can remain in your home until it is sold, usually on your death.

For more information about reverse mortgages see SuperGuide article Reverse mortgages: What are they and how do they work?


Although the PLS has been around for about 30 years, few retirees know about it and even fewer have used it. This was largely due to some fairly restrictive eligibility rules.

But all that changed from 1 July 2019, when new rules expanded its eligibility criteria and withdrawal amounts.


Background to the PLS

The PLS was first established in 1985 when the Hawke Government re-introduced an assets test for the Age Pension and other pensions. Take-up of the scheme has always been limited, despite the Keating Government broadening eligibility in 1996.

According to a Productivity Commission report in 2010, there were only 710 loans in place at that time, mainly to part Age Pensioners.

In the 2018 Federal Budget, the Turnbull Government decided to significantly broaden eligibility for the PLS by allowing full Age Pensioners and more self-funded retirees to participate in the scheme.

From 1 July 2019, the PLS is available to all retirees of Age Pension age who meet the eligibility criteria.

According to the Department of Social Services, at 30 June 2020 there were 3,142 pension loans totalling $52 million.


How does the PLS work?


Case study 1: Full rate single pensioner with $400,000 property

Janet is a 70-year-old single maximum rate age pensioner with a house valued at $400,000. Her Age Pension income (with supplements) is currently $908 per fortnight ($23,598 per year).

Janet would like to access some of the value in her home to boost her fortnightly income. She chooses to receive an additional income stream of around $6,000 in the first year. Her income increases to $1,135 per fortnight ($29,497 per year), 125% of the maximum rate of the Age Pension. (The value of her income stream increases over time in line with the indexation of the pension.)

Janet continues to draw down a PLS income stream for 20 years at an interest rate of 4.5%. Janet passes away at age 90. Her family sell her house for $750,000.

The PLS loan owed to the government has increased to around $300,000, which is paid from the house sale proceeds. Around $450,000 remains in her estate. Over the 20 years, Janet receives around $170,000 in additional income to support her standard of living in retirement.

Source: Fact Sheet 3: Preparing financially for a longer and more secure life, Budget 2018, Treasury


Case study 2: Full rate pensioner couple with $850,000 property

Bob and Sue are a 70-year-old maximum rate pensioner couple with a house valued at $850,000. Their combined Age Pension income is currently $1,368.20 per fortnight ($35,573 per year).

Under the expanded PLS rules, Bob and Sue are able to access some of the value in their home. They choose to receive $2,052 per fortnight ($53,360 per year), the full amount of 150% of the maximum rate of the Age Pension. The value of the income stream increases over time in line with pension indexation.

Over the next 20 years, Bob and Sue receive a PLS income stream at an interest rate of 4.5%. After 20 years, Bob and Sue sell the house for $1.6 million. While the balance of the PLS loan owed to the government has grown to around $900,000, Bob and Sue pay out this balance from the sale proceeds and retain $700,000.

Over the 20 years, Bob and Sue receive around $500,000 in additional income to support their standard of living in retirement.

Source: Fact Sheet 3: Preparing financially for a longer and more secure life, Budget 2018, Treasury


Note: The original interest rate quoted in these case studies was 5.25% (the PLS interest rate at the time of publication). This has been updated to 4.5% to reflect the PLS interest rate applying from 1 January 2020.


Warning: The PLS (or any form of reverse mortgage) is a complex financial borrowing arrangement that can eat away at the amount of equity you have in your home and the amount you are able to leave to your beneficiaries.

It’s important to seek independent financial or legal advice from a qualified professional before making any decisions about applying to use the Pension Loans Scheme.


How much can I borrow?

You can choose any amount for your PLS loan up to the maximum loan amount, which is the total loan you can access under this scheme.

Your (or your partner’s) age and how much equity you own in Australian real estate determines the size of your maximum loan amount.

The maximum loan amount generally increases each year as you or your partner get older and the value of your property increases. As the value increases, your maximum loan amount also increases and if it decreases, your maximum loan amount also decreases.

The fortnightly loan payments stop once your loan balance reaches your maximum loan amount. Interest, however, continues to be added to the outstanding balance until the loan is repaid.


Good to know: You can make a request to Services Australia to change your maximum loan amount at any time, but your request must be in writing and any other people who have ownership of the property must sign it.

If you’re a couple, your partner must sign even if they don’t own the property.


How to calculate the maximum loan amount

The maximum loan amount is calculated using a formula:

Age component amount multiplied by value of real estate** divided by $10,000

Example: A 70 year old single person offers a property valued at $180,000 as security for the loan but wishes to retain equity of $80,000. The maximum loan is calculated as follows:

$3,080 multiplied by ($180,000 minus $80,000, divided by $10,000) = $30,800

*The age component amount is defined in the Social Security Act, Subsection 1135A(3).

**The value of the real estate is rounded down to the nearest multiple of $10,000.

Click the button below to see the Age component amount for your current age, or use the calculator below.

Age Component Amount
Current ageAge component amount
55 or younger$1,710
56$1,780
57$1,850
58$1,920
59$2,000
60$2,080
61$2,160
62$2,250
63$2,340
64$2,430
65$2,530
66$2,630
67$2,740
68$2,850
69$2,960
70$3,080
71$3,200
72$3,330
73$3,460
74$3,600
75$3,750
76$3,900
77$4,050
78$4,210
79$4,380
80$4,560
81$4,740
82$4,930
83$5,130
84$5,330
85$5,550
86$5,770
87$6,000
88$6,240
89$6,490
90 or older$6,750

Source: Services Australia

Maximum loan calculator amount calculator

The calculator below will estimate your maximum loan amount based on your age and real estate security for the loan.

Select your age and enter the amount you wish to use as security.

10 key facts about the new Pension Loans Scheme

Here are 10 important points you need to know about how the Pension Loans Scheme (PLS) operates from 1 July 2019:

1. Who is eligible?

Under the PLS rules, all Aussies who reach Age Pension age are able to apply for a PLS loan if they meet all the following eligibility criteria:

  • You or your partner are of Age Pension age and meet the Age Pension residency rules (live in Australia and are an Australian citizen, permanent resident and/or special category visa holder for at least 10 years, including five years of continuous residence).
  • You must be receiving – or qualify to get – a qualifying pension (including those who are maximum-rate pension recipients). You are still eligible for the PLS even if you have a payment rate of $0 for either the income or assets test.
  • Qualifying pensions include:
    • Age Pension
    • Carer Payment
    • Disability Support Pension
  • You or your partner must provide real estate as security for the loan (see Point 6).
  • You must not be bankrupt or subject to a personal insolvency agreement.

2. Payments are a nominated amount

You are allowed to choose your fortnightly loan payment amount, up a maximum of 150% of your maximum pension entitlement (including supplements). This means:

  • Full Age (or other qualifying) Pensioners can borrow up to 50% of the maximum rate of the fortnightly pension payments (including supplements).
  • Part Age (or other qualifying) Pensioners can withdraw fortnightly payments up to a maximum of 150% of the full Age Pension less the amount of their current fortnightly pension payments (including supplements).
  • Self-funded retirees can borrow up to 150% of the fortnightly full Age Pension.

PLS borrowers can choose any payment amount up to the 150% full Age Pension threshold.

Learn the current Age Pension rates.

3. No lump sums

Income from a PLS loan is received as a regular income stream and you can choose the amount you receive each fortnight, up to 150% of your maximum pension rate.

Unlike normal, commercial reverse mortgages, lump sums are not available under the PLS.

4. Loans are from the government

The PLS is administered by Services Australia and eligible retirees receive the loan payments from the federal government.

Payment amounts received from a PLS loan are non-taxable.


Super tip: Having an existing mortgage on the real estate you wish to use as security for a PLS loan does not automatically make you ineligible for the scheme, but most commercial mortgage contracts ban an additional charge being placed over the property.

An existing mortgage will also affect the value of the property when the maximum loan amount is calculated by Services Australia.


5. Age-based limits apply

The amount you can borrow under the PLS is limited so you do not end up owing more than your home is worth. Your maximum loan amount is limited by:

  • Your age and, for couples, the age of the younger spouse or partner at the time the loan is granted
  • How long you intend to receive payments
  • Whether you are single or partnered
  • The value of your home
  • How much equity you have in the property and any amount of equity you wish to exclude from the loan.

6. Real estate is needed as security

To qualify for a PLS loan, you or your partner must have equity in a property you can use as security for the loan.

The property can be your own home, an investment property or farmland but it must be located in Australia. The real estate can be owned by a company or trust, but either you or your partner must be an attributable stakeholder of the company or trust.

Services Australia may accept property in a retirement village as security if you or your partner’s name is on the freehold title, you are not contractually prevented from selling the property, and you or your partner’s estate control the distribution of the asset.

With a PLS loan, you can choose how much of your real estate value you want to use as security.

You also require adequate and appropriate insurance cover to protect the real estate asset you are using to secure your PLS loan.

7. Low interest rates

At present there is a lower interest rate (4.5% per year compound) for PLS loans than for comparable reverse mortgages.

Date of effectInterest rate
1 January 2020 to present4.50%
25 December 1997 to 31 December 20195.25%
20 March 1997 to 24 December 19976.25%
10 July 1996 to 19 March 19977.90%

Source: Social Security Guide 10 August 2020, Australian Government.

Interest is added to the outstanding loan balance fortnightly until the loan is fully repaid, which normally occurs when the property is sold, or from the borrower’s estate.


Super tip: You can apply online for the Pension Loans Scheme using a Services Australia online account through myGov.

For more information about myGov, see SuperGuide article What is myGov and how do I use it?


8. Repayable at any time

PLS loan debts can be repaid in full or part at any time, however, they are generally repaid when the home used as security is sold, usually as part of the winding up of your estate. 

9. No Age Pension impact

Fortnightly PLS payments are not counted towards the Age Pension income test. The only exception is if you save your PLS payments rather than spend them, which could result in the saved amount being means tested under the assets test.

Although normal reverse mortgages can affect the amount of Age Pension you receive because an income stream is assessed under the income test, PLS payments are not counted.

10. Few fees

There are no establishment or monthly account fees with a PLS loan, which compares with around $1,000 for a normal home loan mortgage. Services Australia may, however, charge costs (including legal fees).

Setting up a PLS loan requires a valuation of your property by a licensed valuer, but you will not pay this cost. You will, however, have to pay any costs associated with registering and removing the charge or caveat Services Australia will place on your property’s title deeds.

Costs are determined after the loan application is made and can be paid immediately, or they can be added to the outstanding loan balance.


Super tip: If you’re interested in the PLS, it’s probably worth taking a look at the Services Australia online information about the scheme.

Check out the details here.


Learn more about how the home affects retirement in the following SuperGuide articles:

Home ownership and super are far more entwined than you might think

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December 11, 2020

Reverse mortgages: What are they and how do they work?

Reverse mortgages: What are they and how do they work?

December 2, 2020

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November 24, 2020

What matters is the home: Review finds most retirees well off, some very badly off

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January 14, 2020

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Learn more about the Age Pension in the following SuperGuide articles:

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March 26, 2021

Case studies: How is the Age Pension assessed?

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March 12, 2021

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March 9, 2021

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July 1, 2020

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March 1, 2020

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March 1, 2020

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November 13, 2019

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IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

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