Bert Van Manen (Forde, Liberal Party) Share this | Hansard source

It's always a pleasure to follow the member for Adelaide. I always appreciate his contributions. I just want to get him to reflect on a comment he made in his contribution around people living in properties where they own the house but lease the land. Many of those people who live in that situation, who receive the age pension, also potentially receive some form of rent assistance. If you change that system it might affect their ability to receive rent assistance, and that might be a greater detriment to their income than amendments to the Pension Loans Scheme. As with any of these things, whilst I understand the point the member for Adelaide was trying to make, we should always be cognisant of the potential flow-on effects by considering the full picture, not just a particular issue.

In my time prior to this place, as many would know, I spent a long time in banking and financial services. Frequently I spoke to clients about reverse mortgages; it was always a point of discussion because they were looking to find ways to access the equity in their home. Despite the fact that the Pension Loans Scheme, in its various forms, has been around since approximately 1985, there have been a variety of changes to the scheme over the years to try and make it more attractive and open it up to more people. In that time from 1985 to now, we're in a situation where only about 5,000 or so people access the Pension Loans Scheme.

This bill, the Social Services and Other Legislation Amendment (Pension Loans Scheme Enhancements) Bill 2021, is important for a number of reasons. Importantly it's about improving the flexibility of the Pension Loans Scheme and giving the opportunity for more senior Australians to have options on drawing on the equity in their home or on other real estate assets to improve their living standards in retirement. As the member for Adelaide and others in this debate have quite rightly pointed out, we have the privilege of being in this place. But we have this privilege because of the people who have gone before us. We should recognise the efforts of those people who have worked hard all their lives—they've saved and they've contributed to building our nation as it is today—and always work towards ensuring they have adequate incomes in retirement.

There are those, we recognise, who have had the opportunity to have very significant and adequate resources for retirement. Many of those people lived and worked in an age, particularly if they worked for large corporates or if they worked for the public sector, when they received defined benefit pensions. Those on designed benefit pensions, particularly larger ones, don't face the difficulties of the risk of the variability of superannuation returns that many newer retirees face. Many others had various forms of fixed or annuitised pension income, which gives them a level of certainty on the income that they receive each and every month or over the course of a year.

But, as we know, one of the great risks with retirement income is that, your income stream—whether it be from an allocated pension, the dividends from a share portfolio, rental income from an investment property, or income other pension sources—generally, in most cases, is sufficient to cover your day-to-day living expenses, but, if you're going to live for 20 or 30 years after retirement, you're going to have some other major expenses. You might need to purchase a new car. You might need to upgrade your appliances at home. You might need to do some renovations. Sadly, your health might deteriorate, and you might need to do some renovations to improve safety measures around, or access to, your house. Not having something like a pension loans scheme where you can access a capital amount to do these things will impact on the pool of investments you have with which to generate an income.

We have long talked about the adequacy of retirement incomes in Australia. Whilst I think this is a good step in helping and improving that flexibility, I think much more work needs to be done on the entire retirement income ecosystem to ensure that it's fit for purpose in the 21st century, and I would hope that the next parliament takes up that opportunity to do some more work in that space.

As I look at this new bill, one of the important features—which is lacking in some of the products that are available out in the marketplace, although I do note, since 2012, this issue has largely been taken care of in those products as well—is the introduction of a 'no negative equity' guarantee to all scheme participants from 1 July 2022. The guarantee will mean that, when scheme participants settle their debt, they will not repay more than the equity in the property used to secure their loan. This measure is designed purely to enhance the safeguards currently in place and ensure that the conservative age based loan to valuation ratios minimise the possibility of a participant's debt exceeding the equity in their secured property. I think that's critically important.

One of the reasons those changes were made in 2012 by those opposite when they were last in government is that, during the 2000s when reverse mortgages were a very popular product out in the marketplace, we saw that, when things went bad with the GFC, people were left in a position of negative equity position in their homes. Equally, even in the ordinary course of events, they could have been left with a negative equity position because of the effect of compounding interest on the debt that was initially taken out. That means that, if you exceed the equity in the house and you have that negative debt, that money has to come out of other assets. So this is a very important and key provision of this bill that brings it into line with what's been done more generally in the marketplace since 2012.

Equally, from 1 July 2022, participants in the scheme will be able to access up to two capped payments in any 26-fortnight period. Participants of the scheme will be able to access a portion of their payment as a lump sum. This will give retirees a new mechanism and greater flexibility to meet unexpected costs and substantial expenses, as I outlined earlier. The maximum lump sum advance is capped at 50 per cent of the maximum fortnightly rate of the age pension over the following 12 months. Based on current age pension rates, the maximum advanced payment could be around $12,580 for singles and around $18,960 for couples combined. The participants will be able to take up to two advances in any 26 fortnight period with the combined total limited to a 50 per cent cap. Any advance taken will reduce the amount of the fortnightly Pension Loans Scheme payment received by the participant, and the amount the participant will receive will generally be the same regardless of whether they take an advanced payment, fortnightly payments or a combination of both. So the value of that flexibility is they can adjust what they wish to do to best meet their circumstances, and that's what the objective of this bill is—that people can make their own informed decisions based on their own individual circumstances. Importantly, this will also protect participants from building excessive debt balances while providing them flexibility on how they can draw down on their equity and their assets for self-support.

Why are these changes necessary? Well, as we've seen over the past many years, Australians are now living up to 10 years longer than they were 50 years ago. As I said earlier, we want to see our senior Australians enjoying the best quality of life during their retirement. The key factor to achieving this, above all else, is financial security and independence. For many senior Australians the age pension is a key source of retirement income, but with housing prices increasing significantly over recent years we've also seen many senior Australians become asset rich and cash-flow poor. These changes open up the flexibility and the opportunity for many Australians to access that asset and create a cash flow for themselves that is going to improve their cash flows and their quality of life. That's what the Pension Loans Scheme is designed to do—and that is, in fairness, really what it has been designed to do since its introduction in 1985.

As I said, there are many other of these types of products in the private marketplace, but their interest rates are higher and their fees and charges are higher, so there is an attractive proposition in what the government is offering to Australian pensioners. Importantly, people have the opportunity to make their own decisions, and we would always encourage people to get sound financial advice to assess their situation and the suitability of this or any other type of product. The changes introduced with this bill will give older Australians more freedom to enjoy their retirement, and that's what we want to see. As I've seen regularly across my electorate in talking to those who are now retired, whilst previously they wanted to go on trips overseas—and many have even recently said to me they want to go back to cruising, because that's one of their great joys: to have a cruise maybe several times a year—equally many are buying caravans and travelling around Australia, enjoying our great continent. These changes provide the opportunity for them to have the cash flow and the access to equity in their home to do those things. But, importantly, it allows them to stay in their home. It doesn't involve them selling down their home to access that equity to do those things, unless they so decide to do that from a lifestyle perspective.

We know that homeownership in Australia has been a bedrock of our society. It is your home. It's more than a place simply to live. It's a place where you've spent many, many years enjoying being surrounded by your family and your friends in your community. It is critically important, therefore, that we support our senior Australians in their retirement to enjoy it to the extent that they wish. I believe that by giving them flexibility through our Pension Loans Scheme to stay in their own home and access that equity for the benefit of their retirement to spend as they wish and to tap into, if they require, for emergency expenses is just another example of this government continuing to deliver for all Australians right across the country. I commend the bill to the House.

Debate interrupted.

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