The federal government’s announcement last week that it wanted to rescue retirement by making it easier and more appealing for older Australians to access the equity in their homes may have left out hundreds of thousands of retirees.
The revamped Pension Loans Scheme (PLS), now known as the Home Equity Access Scheme (HEAS) allows all Australians of Age Pension age, regardless of whether they are receiving a pension, to borrow money against their home at a rate of 3.95 per cent.
“We want to give older Australians more confidence to tap into home equity to enhance their retirement living standards,” Social Services Minister Anne Ruston told The Australian.
“The scheme can help people access this equity to supplement other income and improve overall wellbeing in retirement. The lower interest rate, together with the upcoming enhancements, will make the scheme an attractive option for many retirees looking for a boost in their income.”
Read: PM wants to use your home to rescue retirement income
While the new scheme has been welcomed by many retirement and senior advocacy groups, as well as some home equity providers, one group of older Australians has been left out in the cold.
At last count, there were around 3.9 million retirees in Australia. Around 55 per cent of people aged 55 and older are retired.
More than 1.3 million Australians are aged between 60 and 64 and almost eight in 10 of those own their home outright, while a further 7.5 per cent own their home with a mortgage.
These are the people who read the headlines last week and were disappointed that they would not have “more choice and control of their retirement lifestyle” – as stated by Senator Ruston.
Household Capital, a leading Australian provider of home equity retirement funding, welcomed the government’s announcement last week.
The home equity provider may also be a lifeline for those aged between 60 and pension age – the demographic ignored by the government’s retirement income rescue plan.
The provider, which on Friday announced the backing from one of the world’s biggest banks as well as from an industry super-owned global fund manager, offers home equity access to Australians over 60 – six and a half years before they’ll be eligible for the government scheme.
Read: More older Aussies will need to tap into savings and home equity
It can also lend eligible borrowers up to $1 million rather than the capped 150 per cent of equivalent Age Pension payments, per fortnight.
On top of that, the responsible lending code applies and any transaction is subject to the National Credit Code (NCC), including its consumer protections.
The government’s plan is not covered by the same protections.
Household Capital on Friday also announced an innovative securitisation debt facility which will help to meet an increasing demand from retired Australian homeowners seeking responsible, long-term funding for their retirement needs.
“Household Capital is an innovator in home equity retirement funding with a clear values-based focus on customer outcomes,” said Household Capital chief Joshua Funder.
“We originate responsible, long-term, low-risk Australian residential mortgages, enabling retirees to access some of the equity in their home to achieve a more secure and dignified retirement, recognising the family home can be both the best place to live and a way to fund retirement.
“In partnering with Citi and IFM Investors, we are making access to home equity more efficient, more available and more reliable for retirees. This funding facility delivers Australian retirees low interest rates which mean more access to their home equity retirement funding.”
Despite Australia’s world-class superannuation system, the family home has always been a missing link in the nation’s retirement funding system, says Household Capital chair Nick Sherry.
“The wealth of baby boomers is mostly tied up in their home,” he said. “[So they] need ubiquitous, responsible, long-term, and efficient access to home equity.”
Read: Government pledges to boost retirement savings
The partnership with Citi and IFM Investors will ultimately deliver a more cost-effective, long-term and scalable funding solution to Household Capital to help grow their business and deliver a social dividend for retired Australians, says IFM Investors executive director of debt investments Hiran Wanigasekera.
“By working with Household Capital, we are able to directly support the quality and availability of retirement housing and funding,” he added.
Mr Funder said Household Capital was responding to the Australian Government’s Retirement Income Review and Retirement Income Covenant, both of which highlighted the important role home equity can play in meeting people’s financial needs in retirement.
“This funding package is an endorsement of our approach and will help us continue to deliver on our mission m–to help retired Australians Live Well At Home,” he said.
“[We’ve] already transformed the lives of thousands of retired Australians and this will enable us to help thousands more have confidence in their retirement housing and funding.”
How do you feel about tapping into your home equity in order to fund a better retirement? Why not share your thoughts in the comments section below?
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