Impacts on your pension
Effect on Government Income Support Payments
For people who receive Government Income Support, such as an age pension, consideration should be given to the possible impact such a loan may have on the payments they receive.
The first $40,000 borrowed is not counted as an asset for 90 days even if it remains unspent. Where more than $40,000 is borrowed and not immediately spent, the amount in excess is counted as an asset immediately, with the remaining $40,000 being counted only after 90 days have expired. Where the whole amount is immediately spent, unless spent on assessable assets or other assessable transactions, the above does not apply. The unspent loan proceeds held are a financial investment and subject to deeming under the Income Test.
Where the loan is set up like a ‘line of credit’ and drawn on a regular basis directly from the loan, there is no effect on the Income Test nor the Assets Test unless the funds accumulate in another financial investment.
Some institutions that offer regular payments do so by holding the proceeds of the loan in an ‘offset account’ or a secondary account and making the payments from that source. Where this occurs, the balance of the account is classed as an asset for the Assets Test and is subject to deeming for the Income Test. Where an offset account is used, the interest charged by the institution is usually reduced.
Before signing a contract for this type of loan it would be worth speaking with a Financial Information Service (FIS) Officer to confirm the assessment of the loan on Government Income Support payments. Appointments to meet with FIS Officers can be made by telephoning 13 23 00.