Federal Treasurer Josh Frydenberg is under pressure to review the Pension Loans Scheme (PLS) interest rate after seniors groups accused the government of gouging pensioners accessing the reverse mortgage scheme at a time of record low interest rates.
However, the Treasurer said that the 5.25 per cent interest rate charged for the PLS was much lower than rates charged by the private sector.
“A number of private sector providers offer similar reverse mortgages,” he said. “The current interest rate of 5.25 per cent for the Pension Loans Scheme is lower than the rates charged by the private sector.
“Typical interest rates for commercial reverse mortgage products currently range from around 6.25 per cent to 6.5 per cent per annum. The Reserve Bank indicates the current average home equity loan interest rate is 6.35 per cent.
“The interest rates for reverse mortgages are above standard mortgage rates reflecting their higher risk.”
The PLS was created to give older Australians access to the equity in their home to supplement their retirement income. Those who access the PLS can boost their cash income up to one and a half times the maximum rate of the Age Pension, paid fortnightly.
Any money borrowed has to be paid back to the government at 5.25 per cent.
However, seniors groups say that rate is too high, considering the historically low cash rate, and point out the government’s hypocrisy in criticising banks for failing to pass on the Reserve Bank’s interest cuts when it was charging high rates itself.
Mr Frydenberg has responded to this allegation, saying the government continually assesses the PLS interest rate in accordance with current market conditions.
Lobbying from seniors groups has already led to the government reviewing and subsequently lowering deeming rates. It is possible that such lobbying will also lead to a lowering of the PLS interest rate.
Should the government lower the PLS interest rate? Do you think it is hypocritical for the government to condemn banks for failing to pass on the benefits of low interest rates to consumers when it is charging high interest rates itself?
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