It’s time to review the Pension Loans Scheme (PLS), how it operates, how it can assist either long term or short term and tell you about some new features.
Why did I think it is worthwhile revisiting the Pensions Loans Scheme (PLS)?
A couple of reasons.
1. The Government announced a couple of changes to the scheme in the May budget.
2. I have been receiving questions on how the PLS operates.
3. The increasing value in age pensioners homes.
Let us have a closer look at point 3 first.
Domain’s December 2020 quarterly house price report shows the average price for a home in Australia in December 2020 was $852,940. Melbourne was very close to $1 million, and in Sydney, the average price was more than $1.2 million.
In the first 5 months of this year, the average increase in property across all capital cities was close to 10%, meaning all the average values that I mentioned in the last paragraph have all increased by close to 10%.
So, how does this affect the average age pensioner in Australia? It does not; however, with the increase in the value of their home and the land that it is built on, pensioners may see increases in their annual home insurance and rates.
The government is very keen for retirees whose cash reserves maybe dwindling to access the increased equity in their home to improve their lifestyle, increasing their spending and reducing their reliance on the age pension, which all helps the economy.
The ability to sell your home and buy a smaller property and deposit the difference into superannuation – Downsizer Contributions – is one measure.
However, speaking to age pensioners there appears to be two issues with this measure which they are not all that keen on. Firstly, many have lived in their current home for a long time and are very comfortable where they live. It is a home full of memories. Secondly, selling and moving to a smaller home, and having more money in superannuation, can reduce their age pension, which they do not feel comfortable about.
Let us now look at points 1 and 2.
What does the PLS have to offer? The PLS provides the ability to access the equity in your home, increasing the amount of age pension you receive on a fortnightly basis to an amount of up 150% of the full age pension. For self-funded retirees who need to increase their income, they too can also access the PLS and apply for a fortnightly payment of up to 150% of the full age pension.
In practical terms what does this mean? As an example, a single age pensioner on the full age pension of $952.70 could access the equity in their home and receive up to an additional $476.35 per for fortnight. For a single self-funded retiree, they could access the equity in their home and receive up to $1,429.05 per fortnight.
How much of the equity in my home can I access?
This depends on your age, the value of your property, and how much of the equity you wish to maintain. To explain the process in simple terms I will use an example.
A single 75-year-old in receipt of the full age pension, who has a home valued at $850,000, who would like to retain equity in their home of $350,000. The following formula is the basis for the maximum loan amount:
$3,750 (age component value)* x (($850,000 – $350,000)) / $10,000 = $50,000. This is the maximum amount of the loan.
In practical terms, it means that our single age pensioner could receive an additional $476.35 per fortnight at the current interest rate payable of 4.5% on the loan for approximately 4 years.
This maximum loan amount can be recalculated and increased on a yearly basis, based on an increase in the value of the home and the increase in the pensioner’s age.
The payments made under the PLS are not taxable and are not assessable by Centrelink under the income test.
What are the changes to the scheme that the government announced in the May budget?
1. A person can now apply for a lump sum payment up to the maximum annual amount applicable to their situation. In the example above, this would mean that our single age pensioner could apply for a lump sum on a yearly basis totalling $12,385.10.
The downside to this advance lump sum is that it effectively reduces the extra fortnightly loan payments that they were receiving, after lump amount is paid and the total reaches $12,385.10 for the year to zero dollars.
2. The second announcement was the introduction of a ‘No Negative Equity Guarantee’, meaning that borrowers under the PLS, or their estate, cannot owe more than the value of their property.
I have provided a lot of information that is quite complex to understand. What I would like to point out is that the PLS gives age pensioners and self-funded retirees an extra avenue of accessing the equity in their home with a very credible lender “the Government” at a competitive interest rate of 4.5%.
Before you rush out and sign up for a loan under the PLS, make sure you understand how the scheme works in its entirety, and the pros and cons with regards to your own circumstances. The best way to do this is to speak with a professional.
*The age component value is based on a person’s age and will increase as a person grows older.
Source: Mark Teale | Centrepoint Alliance
Aged Care – the process
/in Financial Advice General Info /by Shellie FisherWhat are the first steps that need to be taken to ensure that our loved ones, or in this example, my widowed mum, can effectively enter a residential aged care facility without too many dramas.
1. Complete an ACAT assessment
You can’t drive mum to the closest nursing home and ask if they have a room available for her. Your mum needs to have an ACAT assessment to say that she is eligible from a health perspective to enter residential aged care.
What is an ACAT assessment?
ACAT stands for Aged Care Assessment Team. This is a team of medically qualified people who can assess your mum’s health and decide on a suitable plan to ensure your mum is cared for and receives the necessary medical care.
How do I find my local Aged Care Assessment Team?
A very good government website myagedcare.gov.au will provide you with direction on applying for an assessment. After the assessment is completed, a letter will be forwarded to you or your mum in this example, outlining the level of care that she is entitled to receive.
It is important that the letter provides the necessary residential aged care approval to ensure mum can enter a residential aged care facility.
Once you have the correct ACAT Assessment letter, mum can now consider entering a nursing home.
2. Figure out how much you need to pay?
There are forms that need to be completed and there are a couple of different forms which are relevant to a person’s circumstances.
In mums’ case, as she is a widow and in receipt of an age pension who owns her home, she will need to complete an SA485 which will ask questions concerning her home, its’ value and whether she is planning to rent the home or sell the property. They will not necessarily ask her about her other assets and income because Centrelink already has these details.
If mum was not in receipt of an age pension, she would need to complete a far more detailed and comprehensive SA457 form as Centrelink does not have any income or asset details.
If you are confident in using the internet, there is also a dynamic SA486 form that you can complete online which changes the questions on an ongoing basis depending on the answers you have provided to the previous question.
These forms are all available on myagedcare.gov.au, which provide a good explanation of who should be completing what form.
These forms can be completed before mum needs to enter the home so that mum and you, in this example are aware of the fees, but do not panic if you are not able to do so as they certainly can be completed after mum has entered the aged care facility.
A few weeks after completing and lodging the forms, mum will receive a letter from Services Australia outlining her fees and whether she needs to pay a Refundable Accommodation Deposit.
3. You can now relax!
After mum enters the aged care facility her fees are reviewed on a quarterly basis in January, March, July, and September. The aged care facility will receive notification of the review and any possible change in the fees, with necessary adjustments being made for the fees which have been paid in the last three months.
So, even though mum is now safely residing in the aged care facility you still need to be diligent to ensure that mum’s fees are correct, and her financial circumstances are reviewed and kept up to date on a regular basis.
If you still are unsure of the process and have questions speak to an expert who can fully explain the issues you and your mum may face when it does come time for her to enter residential aged care.
Source: Mark Teale | Centrepoint Alliance
Retirement – are you emotionally prepared?
/in Financial Advice General Info /by Shellie FisherBeing financially prepared is only one part of retirement. Being emotionally prepared for retirement and understanding what you may experience from an emotional point of view is just as important as your financial position.
If you Google, “preparing emotionally for retirement” you will find numerous websites all providing advice. These websites are not only located in Australia, but also in the UK, the USA and Europe.
These five stages are common to the majority of these sites.
1. Realisation – the actual day of retirement. The big day arrives, you are ready and excited about your future – hopefully? But be prepared for a mix of emotions, saying farewell to co-workers with whom you have spent a large part of every week for in some cases many years. You will not only experience feelings of relief but also anxiety as you face the next exciting instalment in your life.
2. Honeymoon – you are now living your life on your terms. You no longer need to worry about commuting to work. For some the alarm which has gone off every morning between Monday and Friday can finally be thrown away. Your plans of travel have become a reality, you have started a new hobby, your life is busy, fun and you are fulfilled.
3. Disenchantment – after a period of time the gloss wears off and you are bored. You are starting to live with feelings of regret, it is not as good as you expected you have lost your self-esteem and you are now living 24 hours a day with your beautiful partner, and you find that they can be a little irritating. This is a time where if you are not careful you will find yourself feeling depressed and become isolated. It is important to remember these feelings are not unique to you and with careful planning you should be able to push through.
4. Reorientation – following your period of disenchantment you make a recommitment to your original plans. Re-visit those plans you had originally committed to prior to your retirement. Did you start the new hobby? Did you travel to all the places you had on your wish list? Re-establish your feelings of self–esteem by volunteering or maybe even going back to some part-time work. Re-visit the purpose and passion you had for retirement before you retired.
5. Stability – this is the final stage. You are finally feeling comfortable, you have adjusted to the new rhythm of your life. You have learnt to live on your own terms, you have survived the ups and downs of the disenchantment and reorientation of the first year of your retirement. Hopefully, it does not take you any longer to reach this stage.
Not everyone who retires is going to experience these five stages. For some, retirement will be a natural fit, but I believe it is important that you understand what may happen and how you may feel and remember that you are not unique, it happens to many retirees.
Remember that understanding the emotions associated with the early stages of retirement can be just as important as understanding the financial aspects of retiring.
Source: Mark Teale | Centrepoint Alliance
The “New” Government Pensions Loans Scheme – Do I Need Extra Income?
/in Financial Advice General Info /by Shellie FisherIt’s time to review the Pension Loans Scheme (PLS), how it operates, how it can assist either long term or short term and tell you about some new features.
Why did I think it is worthwhile revisiting the Pensions Loans Scheme (PLS)?
A couple of reasons.
1. The Government announced a couple of changes to the scheme in the May budget.
2. I have been receiving questions on how the PLS operates.
3. The increasing value in age pensioners homes.
Let us have a closer look at point 3 first.
Domain’s December 2020 quarterly house price report shows the average price for a home in Australia in December 2020 was $852,940. Melbourne was very close to $1 million, and in Sydney, the average price was more than $1.2 million.
In the first 5 months of this year, the average increase in property across all capital cities was close to 10%, meaning all the average values that I mentioned in the last paragraph have all increased by close to 10%.
So, how does this affect the average age pensioner in Australia? It does not; however, with the increase in the value of their home and the land that it is built on, pensioners may see increases in their annual home insurance and rates.
The government is very keen for retirees whose cash reserves maybe dwindling to access the increased equity in their home to improve their lifestyle, increasing their spending and reducing their reliance on the age pension, which all helps the economy.
The ability to sell your home and buy a smaller property and deposit the difference into superannuation – Downsizer Contributions – is one measure.
However, speaking to age pensioners there appears to be two issues with this measure which they are not all that keen on. Firstly, many have lived in their current home for a long time and are very comfortable where they live. It is a home full of memories. Secondly, selling and moving to a smaller home, and having more money in superannuation, can reduce their age pension, which they do not feel comfortable about.
Let us now look at points 1 and 2.
What does the PLS have to offer? The PLS provides the ability to access the equity in your home, increasing the amount of age pension you receive on a fortnightly basis to an amount of up 150% of the full age pension. For self-funded retirees who need to increase their income, they too can also access the PLS and apply for a fortnightly payment of up to 150% of the full age pension.
In practical terms what does this mean? As an example, a single age pensioner on the full age pension of $952.70 could access the equity in their home and receive up to an additional $476.35 per for fortnight. For a single self-funded retiree, they could access the equity in their home and receive up to $1,429.05 per fortnight.
How much of the equity in my home can I access?
This depends on your age, the value of your property, and how much of the equity you wish to maintain. To explain the process in simple terms I will use an example.
A single 75-year-old in receipt of the full age pension, who has a home valued at $850,000, who would like to retain equity in their home of $350,000. The following formula is the basis for the maximum loan amount:
$3,750 (age component value)* x (($850,000 – $350,000)) / $10,000 = $50,000. This is the maximum amount of the loan.
In practical terms, it means that our single age pensioner could receive an additional $476.35 per fortnight at the current interest rate payable of 4.5% on the loan for approximately 4 years.
This maximum loan amount can be recalculated and increased on a yearly basis, based on an increase in the value of the home and the increase in the pensioner’s age.
The payments made under the PLS are not taxable and are not assessable by Centrelink under the income test.
What are the changes to the scheme that the government announced in the May budget?
1. A person can now apply for a lump sum payment up to the maximum annual amount applicable to their situation. In the example above, this would mean that our single age pensioner could apply for a lump sum on a yearly basis totalling $12,385.10.
The downside to this advance lump sum is that it effectively reduces the extra fortnightly loan payments that they were receiving, after lump amount is paid and the total reaches $12,385.10 for the year to zero dollars.
2. The second announcement was the introduction of a ‘No Negative Equity Guarantee’, meaning that borrowers under the PLS, or their estate, cannot owe more than the value of their property.
I have provided a lot of information that is quite complex to understand. What I would like to point out is that the PLS gives age pensioners and self-funded retirees an extra avenue of accessing the equity in their home with a very credible lender “the Government” at a competitive interest rate of 4.5%.
Before you rush out and sign up for a loan under the PLS, make sure you understand how the scheme works in its entirety, and the pros and cons with regards to your own circumstances. The best way to do this is to speak with a professional.
*The age component value is based on a person’s age and will increase as a person grows older.
Source: Mark Teale | Centrepoint Alliance
Age pension entitlement… Am I receiving the correct age pension?
/in Financial Advice General Info /by Shellie FisherIt is a question that is often asked. Unfortunately, it is not always fully explained by the correspondence from Centrelink or Veterans Affairs.
On 20 March 2021 the Age and Service Pensions were increased, the first increase in 12 months. Pensions are normally adjusted or increased twice a year in March and September, but because of a negative CPI figure last year, there was no increase to the pension rates in September 2020.
The single pension was increased from $944.30 per fortnight to $952.70 per fortnight and the couples combined pension was increased from $1,423.60 per fortnight to $1,436.20 per fortnight.
Some pensioners will not see any increase in their pension and may in fact see a decrease.
Why would this be the case?
In addition to adjusting the pension rates for movements in the CPI in March and September of every year, Centrelink and Veterans Affairs also automatically review and adjust the value of a pensioner’s investments in Shares and Managed Funds.
Since September last year the share markets in Australia and around the world have grown substantially. For example, the Australian market has grown by approximately 16%, the UK market by 14%, the Hong Kong market by 21% and the US market by 22%.
The downside for pensioners who are receiving a part pension and are invested in these areas either directly or through managed funds is that they may see a decrease in their pensions because of an increase in the value of their investments.
It is extremely important for retirees who are receiving a pension from either Centrelink or Veterans Affairs to remember that your entitlement is based on your income and assets and any movement in these values can have an impact on your entitlement. Therefore it is imperative for pensioners to ensure that the information that Centrelink or Veterans Affairs hold is correct and up to date.
If the market were to fall as it did at the beginning of last year, you do not have to wait for the automatic review by Centrelink or Veterans Affairs in March and September. You can ask for a manual review to be conducted on your entire portfolio.
Please be careful when requesting a manual review. If you have one investment which is not performing, you are not able to request a review of just this investment, the review will be conducted on your entire investment portfolio.
If you are unsure of your correct entitlement based on your current share or managed funds portfolio, please speak to an expert.
Source: Mark Teale | Centrepoint Alliance
Compulsory super – a bit of a problem child?
/in Financial Advice General Info /by Shellie FisherThe current debate is whether compulsory employer superannuation contributions (generally referred to as “super guarantee” or “SG”) should be increased from 1 July 2021 or be deferred or possibly even suspended.
Back in the mid-1980s compulsory super was first introduced as trade-off for a national wage increase. It was referred to as award super, and required employers to contribute 3%, starting at 1%, of a person’s salary or wage to a superannuation fund.
By June 1988, just on half of all employees were receiving superannuation from their employer.
The Labor Government introduced SG legislation that commenced on 1 July 1992. The rate of SG contributions would progressively increase from 3% to 9% between 1992 and 2002.
By November 1993, 80% of employed people were making super contributions, or had them made (by an employer) for them. In many ways, SG had become “almost” universal for employees.
At one point, back in the 1990s the Keating Labor Government proposed supplementing SG contributions with a compulsory employee contribution starting at 1% and increasing to 3% by 1999-2000. This idea was abandoned when the Howard Liberal Government took office in 1996.
In 2010, in response to the Henry Review, the Coalition Government proposed increasing the rate of SG to 12% by 2019-20. This was legislated, however the dates have been tweaked along the way as successive governments of both persuasions have played with the system. The SG rate is not due to increase to 12% until 1 July 2025.
Where are we today?
The SG rate is due to increase from the current 9.5% to 10% from 1 July 2021.
However, as many businesses suffered following the lockdowns imposed by the outbreak of COVID-19 in early 2020, many are arguing that increasing the SG rate to 10% from 1 July 2021 is a step too far in the current economic environment. Any discussions by our political leaders on deferring the July increase has become highly politically charged. One of the major critics of any deferral is the superannuation sector which makes its money from the inflow of superannuation contributions.
What to expect?
As things presently stand, the government can go one of two ways.
They can either stick with the scheduled increase to 10% from 1 July 2021 – after all that is enshrined in legislation – or they can introduce an amendment to defer the next, and possibly future increases. However, if seeking to table amending legislation, the government may not have the numbers to support a deferment.
At this stage, I suspect we will hear more about this as we approach the Federal Budget which is expected to be delivered on 11 May 2021.
If you are looking to maximise your retirement savings, consider seeking the advice of a qualified financial planner.
Source: Peter Kelly | Centrepoint Alliance