Financial advisers are being warned to exercise caution and double check licensing requirements when advising on the Federal Government's Pension Loan Scheme as a retirement income supplement.
As the Pension Loan Scheme is within credit licensing rules, financial advisers cannot provide advice on the instrument unless authorised under an Australian credit licence, Aged Care Steps director Louise Biti said.
As such, Biti said advisers without such authorisation are limited to providing strategy advice on the use of equity release options in general and must keep this in mind when formulating strategies and composing Statements of Advice.
Advisers without the required authorisation must refer any clients looking to take advantage of the scheme should refer them to a licensed credit broker. Alternatively, the Centrelink Financial Information Service can also provide advice on the scheme.
Either way, social security rules dictate that any client wishing to use the scheme must first meet with a Financial Information Services (FIS) officer, Biti said.
Under the scheme, clients must use a home as security, with the Government registering a caveat over the property. The outstanding loan balance attracts a 5.25% interest rate which compounds fortnightly, charged by the Department of Human Services.
The scheme was expanded as part of the Federal Budget earlier this year, allowing all those eligible for the Age Pension to receive payments of up to 150% of the maximum entitlement, minus their pension. Currently, only part-rate pensioners are able to access the scheme.
"The new rules are proposed to be effective from 1 July 2019 but legislation is yet to be passed. If passed, it opens another opportunity for clients to fund aged care needs using equity in their home - especially clients wanting to top-up home care, those that are waiting for a home care package to be allocated, or couples needing to increase cashflow when one person moves into residential care," Biti said.