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 2019
Purpose
The Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2019 (the instrument) 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 4.50 per cent per annum.
In addition to the power to make this instrument 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 Accordingly, the Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 will be repealed by this instrument.
Background
The Pension Loans Scheme allows eligible Australians of Age Pension age to improve their income in retirement by taking a loan secured by 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 instrument sets the rate of compound interest payable on a loan under the Pension Loans Scheme at 4.50 per cent per annum, with effect from 1 January 2020. Prior to this, the compound interest rate had been 5.25 per cent per annum since 1997.
Commencement
This instrument commences on 1 January 2020.
Consultation
Services Australia and the Department of Veterans’ Affairs was consulted on implementation of the changes made by the instrument. The Office of Best Practice Regulation (OBPR) was consulted regarding whether a Regulatory Impact Assessment was required. Public consultation was not required as the instrument is beneficial.
Regulation Impact Statement (RIS)
OBPR advised that this instrument does not require a RIS, as it is not regulatory in nature, does not impact on business activity and will have no, or minimal compliance costs – OBPR ID 25869.
Explanation of the provisions
Section 1 provides the name of this instrument is the Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2019.
Section 2 provides that the instrument commences on 1 January 2020.
Section 3 provides that the authority for making the instrument 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 4.50 per cent per annum.
Schedule 1 – Repeal
Item 1 repeals the Social Security (Pension Loans Scheme—Rate of Compound Interest) Determination 2018.
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 2019
The Social Security (Pension Loans Scheme – Rate of Compound Interest) Determination 2019 (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 instrument 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 4.50 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 taking into account the risk of non-recovery of debt, and covering capital and administrative costs. This instrument provides that interest rate for the Pension Loans Scheme.
Conclusion
This instrument 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 4.50 per cent per annum. The instrument ensures the sustainable operation of the Pension Loans Scheme. As the Pension Loans Scheme is a part of the Australian social security system, this instrument furthers the right to social security, and is therefore compatible with Australia’s human rights obligations.
Issued with the authority of the Hon Anne Ruston MP, Minister for Families and Social Services