Veterans’ Entitlements (Pension Loans Scheme—Rate of Compound Interest) Determination 2018

Administered by Department of Veterans' Affairs

Legislation au F2018L01629 Not in force Legislative Instrument

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EXPLANATORY STATEMENT

 

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

 

Veterans’ Entitlements Act 1986

 

Veterans’ Entitlements (Pension Loans Scheme—Rate of Compound Interest) Determination 2018

 

Purpose

The Veterans’ Entitlements (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 (the Determination) is made under subsection 52ZC(4) of the Veterans’ Entitlements Act 1986 (the Act). Subsection 52ZC(4) of the Act allows the Minister for Families and Social Services to determine the rate of compound interest that is payable on a loan under the Pension Loans Scheme.

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the Pension Loans Scheme (Veterans’ Entitlements)—Rate of Compound Interest Determination No. 2 of 1997 will be repealed by this Determination.

Background

The Pension Loans Scheme allows eligible veterans, partners of veterans, and war widows or widowers of 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 Veterans’ Affairs was consulted as it has administrative responsibility for the Act.

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 cost.

Explanation of the provisions

Section 1 provides the name of this instrument is the Veterans’ Entitlements (Pension Loan 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 52ZC(4) of the Veterans’ Entitlements Act 1986.

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 (Veterans’ Entitlements)—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 Veterans’ Entitlements (Pension Loans Scheme—Rate of Compound Interest) Determination 2018

 

The Veterans’ Entitlements (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

This Determination is made under subsection 52ZC(4) of the Veterans’ Entitlements Act 1986 (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 veterans, partners of veterans, and war widows or widowers of 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 52ZC(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 Veterans’ Entitlements (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 was enacted to establish the rate of compound interest payable on loans under the Pension Loans Scheme at 5.25 per cent per annum. This determination was made under the authority granted by subsection 52ZC(4) of the Veterans’ Entitlements Act 1986, empowering the Minister for Families and Social Services to set this rate. The Pension Loans Scheme enables eligible veterans, partners of veterans, and war widows or widowers of pension age to enhance their retirement income by taking out a reverse mortgage loan from the Australian Government. The scheme subjects the outstanding loan debt to a compound interest rate calculated fortnightly, and this determination ensures the sustainable operation of the scheme by providing a fair and reasonable interest rate that accounts for the inherent risks and operational costs. Consequently, this legislative instrument upholds the right to social security by supporting the Australian social security system. This determination maintains the existing compound interest rate of 5.25 per cent per annum, which has been in place since 1997, and is slightly above the Reserve Bank of Australia’s average lending rate for discounted owner-occupier housing loans. The rate is designed to reflect the greater risk of non-recovery associated with the Pension Loans Scheme compared to traditional mortgages. Despite the interest rate being below the average for commercially available home equity loans, it is considered adequate given the scheme's conservative loan-to-value ratios and its cessation of payments when these ratios are exceeded. This approach ensures that the scheme remains viable and continues to provide essential financial support to eligible individuals.

Scope and Application

The Veterans’ Entitlements (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 applies to the Pension Loans Scheme under the Veterans’ Entitlements Act 1986, specifically setting the rate of compound interest payable on loans at 5.25 per cent per annum. This Determination is applicable to eligible veterans, partners of veterans, and war widows or widowers of pension age who are participants in the Pension Loans Scheme, a program designed to improve their income in retirement by providing loans in the form of a reverse mortgage on their real estate from the Australian Government. The rate of compound interest is calculated on a fortnightly basis, ensuring that the outstanding debt of participants accrues interest at a fixed rate. The Determination is of national jurisdiction, being made under Commonwealth legislation. There are no exclusions or exemptions explicitly stated in the Determination itself, though it repeals the previous Pension Loans Scheme (Veterans’ Entitlements)—Rate of Compound Interest Determination No. 2 of 1997. The Determination will be applied in a manner consistent with the overarching Veterans’ Entitlements Act 1986, which may be further refined or supplemented through subordinate instruments if necessary.

Key Provisions

The Veterans' Entitlements (Pension Loans Scheme—Rate of Compound Interest) Determination 2018 (the Determination) is instrumental in setting the rate of compound interest for loans under the Pension Loans Scheme at 5.25 per cent per annum (Section 5). This Determination is made under subsection 52ZC(4) of the Veterans' Entitlements Act 1986 (the Act) and specifies the interest rate applicable to eligible veterans, partners of veterans, and war widows or widowers of pension age who participate in the scheme (Section 1). This rate is calculated on a fortnightly basis and has remained unchanged since 1997. The Determination imposes specific obligations on the parties involved, primarily ensuring that the interest rate set by the Determination is applied to all eligible loans under the Pension Loans Scheme. This includes the requirement that the Australian Government adhere to the specified interest rate when disbursing and calculating interest on loans provided under the scheme (Section 5). Additionally, the Determination mandates the repeal of the previous instrument, the Pension Loans Scheme (Veterans’ Entitlements)—Rate of Compound Interest Determination No. 2 of 1997, thereby replacing it with the current Determination (Schedule 1, Item 1). Any breach of the provisions set forth in the Determination may not explicitly outline specific offences, penalties, or consequences. However, it is understood that the application of an incorrect interest rate could lead to administrative and financial discrepancies within the Pension Loans Scheme. Such discrepancies could potentially impact the financial stability and welfare of eligible recipients. While the Determination does not specify criminal or civil penalties, any non-compliance or improper application of the interest rate might result in corrective actions by the relevant authorities to ensure adherence to the prescribed interest rate, thereby maintaining the integrity and sustainability of the Pension Loans Scheme.

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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.