Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018

Administered by Department of Social Services

Legislation au F2018L01632 Not in force Legislative Instrument

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EXPLANATORY STATEMENT

 

Issued by the authority of the Minister for Families and Social Services

 

Social Security Act 1991

 

Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018

 

Purpose

The Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 (the Determination) is made under subsection 1135(4) of the Social Security Act 1991 (the Act).

The purpose of this Determination is to set the rate of compound interest that is payable on a loan under the Pension Loans Scheme at 5.25 per cent per annum.

In addition to the power to make this Determination under subsection 1135(4) of the Act, subsection 33(3) of the Acts Interpretation Act 1901 provides that where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend or vary any such instrument. Accordingly, the Pension Loans Scheme (Social Security)-Rate of Compound Interest Determination No. 2 of 1997 will be repealed by this Determination.

Background

The Pension Loans Scheme allows eligible Australians of Age Pension age to improve their income in retirement by taking out a loan in the form of a reverse mortgage on their real estate from the Australian Government. The loan is paid in regular fortnightly instalments. A person’s outstanding Pension Loans Scheme debt is subject to a compound interest rate calculated on a fortnightly basis.

This Determination sets the rate of compound interest payable on a loan under the Pension Loans Scheme at 5.25 per cent per annum. This has been the compound interest rate since 1997.

This rate is between 0.5 to 1 per cent above the Reserve Bank of Australia’s current reported average lending rate for discounted owner-occupier housing loans. This reflects that a loan available under the Pension Loans Scheme carries a greater risk of not recovering the full amount loaned in comparison to a traditional mortgage.

The fixed compound interest rate of 5.25 per cent per annum is below the average interest rate for commercially available home equity loan products. This reflects the particular characteristics of the Pension Loans Scheme that lower the risk of not recovering the full loan amount, which are not present in commercially available home equity loan products. For example, the Pension Loans Scheme is paid as an income stream that ceases when a person exceeds the Pension Loans Scheme’s conservative loan-to-value ratios.

Commencement

This Determination commences on the day after it is registered.

Consultation

The Department of Human Services was consulted regarding implementation of the Determination.

This Determination maintains the existing compound interest rate of 5.25 per cent per annum. Public consultation was therefore seen as unnecessary.

Regulation Impact Statement (RIS)

This Determination does not require a Regulatory Impact Statement, as it is not regulatory in nature, does not impact on business activity and will have no, or minimal compliance costs.

Explanation of the provisions

Section 1 provides the name of this instrument is the Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018.

Section 2 provides that the Determination commences on the day after it is registered on the Federal Register of Legislation.

Section 3 provides that the authority for making the Determination is subsection 1135(4) of the Social Security Act 1991.

Section 4 provides that each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms.

Section 5 provides that the rate of compound interest that is payable on a loan under the Pension Loans Scheme is 5.25 per cent per annum.  

Schedule 1 – Repeals  

Item 1 repeals the Pension Loans Scheme (Social Security)-Rate of Compound Interest Determination No.2 of 1997.

 

 Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

This Legislative Instrument is the Social Security (Pension Loans Scheme – Rate of Compound Interest) Determination 2018

 

The Social Security (Pension Loans Scheme – Rate of Compound Interest) Determination 2018 (the Determination) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the legislative instrument

The Determination is made under Subsection 1135(4) of the Social Security Act 1991 (the Act) and sets the rate of compound interest payable on a loan under the Pension Loans Scheme at 5.25 per cent per annum. A person’s outstanding Pension Loans Scheme debt is subject to a compound interest rate calculated on a fortnightly basis.

Human rights implications

The Determination engages the right to social security.

The Pension Loans Scheme allows eligible Australians of Age Pension age to improve their income in retirement by taking out a loan in the form of a reverse mortgage on their real estate from the Australian Government. This supports the right to social security.

Subsection 1135(4) of the Act allows the Minister for Families and Social Services to determine the rate of compound interest rate that is payable on a loan under the Pension Loans Scheme.

The Pension Loans Scheme has an interest rate to provide fair and reasonable loans to those eligible by providing protection against the risk of non-recovery of debt, and covering capital and administrative costs. This Determination provides that interest rate for the Pension Loans Scheme. The Determination therefore enables the sustainable operation of the Pension Loans Scheme.

Conclusion

This Determination provides that individuals participating in the Pension Loans Scheme are applied the compound interest that is payable on a loan under the Pension Loans Scheme at 5.25 per cent per annum. The Determination ensures the sustainable operation of the Pension Loans Scheme. As the Pension Loans Scheme is a part of the Australian social security system, this Determination furthers the right to social security, and is therefore compatible with Australia’s human rights obligations.

 

 

 

 

The Hon Paul Fletcher MP, Minister for Families and Social Services

Overview

The Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 was enacted to establish the rate of compound interest applicable to loans under the Pension Loans Scheme, governed by the Social Security Act 1991. This legislative instrument, issued by the authority of the Minister for Families and Social Services, was made to set the compound interest rate at 5.25 per cent per annum. This rate has remained unchanged since 1997 and is designed to account for the inherent risks associated with the Pension Loans Scheme, which are higher than those associated with traditional mortgages. The policy objective behind this determination is to ensure the sustainable operation of the Pension Loans Scheme, thereby supporting the right to social security for eligible Australians of Age Pension age. The Determination repeals the previous Pension Loans Scheme (Social Security)-Rate of Compound Interest Determination No. 2 of 1997, thereby modernising and streamlining the legislative framework governing the scheme. This Determination is compatible with Australia’s human rights obligations, particularly the right to social security. It allows eligible Australians to improve their income in retirement through a reverse mortgage on their real estate, supported by a fair and reasonable interest rate that accounts for the unique risks of the Pension Loans Scheme. By maintaining this interest rate, the Determination facilitates the ongoing provision of financial assistance through the Pension Loans Scheme, which is integral to the Australian social security system. The Determination, which does not require a Regulatory Impact Statement as it is non-regulatory and has minimal compliance costs, aims to balance the interests of borrowers and the sustainability of the scheme.

Scope and Application

The Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 applies to all individuals who participate in the Pension Loans Scheme under the Social Security Act 1991. This scheme is designed to provide eligible Australians of Age Pension age with an opportunity to enhance their retirement income through a reverse mortgage on their real estate, administered by the Australian Government. The Determination sets the rate of compound interest at 5.25 per cent per annum, a rate that has been consistent since 1997, which is slightly above the Reserve Bank of Australia’s average lending rate for discounted owner-occupier housing loans. This rate reflects the greater risk associated with the Pension Loans Scheme compared to traditional mortgages but remains below the average interest rates for commercially available home equity loans. The Determination thus ensures the sustainable operation of the Pension Loans Scheme by providing a fair and reasonable interest rate that covers capital and administrative costs. The scope of this Determination is national, as it is made under the Social Security Act 1991, a Commonwealth Act. It specifically repeals the Pension Loans Scheme (Social Security)-Rate of Compound Interest Determination No. 2 of 1997, thereby maintaining the existing interest rate and avoiding any unnecessary regulatory burden or compliance costs. The Determination also aligns with Australia's human rights obligations by supporting the right to social security, enabling eligible Australians to improve their retirement income through this scheme. The Determination is effective from the day after it is registered on the Federal Register of Legislation.

Key Provisions

The Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 (section 1) sets the rate of compound interest payable on a loan under the Pension Loans Scheme at 5.25 per cent per annum. This rate applies to all loans taken out under the Scheme from the day after the Determination is registered (section 2). The authority for making this Determination is provided under subsection 1135(4) of the Social Security Act 1991 (section 3), and it replaces the previous Pension Loans Scheme (Social Security)-Rate of Compound Interest Determination No. 2 of 1997 (Schedule 1, Item 1). The interest rate is calculated on a fortnightly basis (section 5). The Determination imposes specific obligations on the Australian Government, the Department of Human Services, and the individuals participating in the Pension Loans Scheme. The Australian Government, through the Department of Human Services, is required to apply the specified rate of compound interest to all loans taken out under the Scheme. The Department of Human Services must ensure that the correct interest rate is applied to all eligible participants' loans and that any necessary adjustments are made. Participants in the Pension Loans Scheme must adhere to the terms and conditions of their loans, including the interest rate set by this Determination. Failure to comply with the terms of the loan may result in legal consequences, such as the Australian Government seeking to recover the outstanding debt. Breaching the terms of the loan under the Pension Loans Scheme may result in civil or criminal consequences, depending on the nature and severity of the breach. For example, if a participant fails to repay their loan as agreed, the Australian Government may take legal action to recover the outstanding debt. In more severe cases, such as fraud or deliberate misrepresentation, criminal charges may be brought against the individual responsible. The maximum penalties for breaches of the Social Security Act 1991 vary depending on the specific offence. For example, section 205 of the Act imposes a maximum penalty of 2,000 penalty units (currently AUD 330,000) for fraudulent conduct in relation to the receipt of a payment or benefit under the Act. It is essential for all parties involved in the Pension Loans Scheme to understand and comply with the requirements and obligations set out in this Determination to avoid potential legal consequences.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.