HEAS: another way to access equity from the home

Since 1 July 2019, eligible income support pensioners can top their pension up to 150% of the maximum age pension by drawing down a loan that’s secured against their home. Or any other property they own – even if it’s not their home. 

Example: A retiree couple wants to make the most of their healthy retirement years by going on an overseas cruise every year or two.

Should they fund their cruises by:

1.  Increasing the payments from their dwindling account based pension?
2.  Downsizing their home and making a super contribution?
3.  Taking out a reverse mortgage from the bank?
4.  Or should they use the Home Equity Access Scheme (HEAS) to top up their Age Pension with a low interest loan through Centrelink?

When considering HEAS as a strategy option, we understand you might want to explore the answers to these questions: 

•  How much can they borrow through HEAS?
•  How much extra income can they receive?
•  When will they reach their maximum loan amount?
•  How much of their estate will be left to pass onto their children?

The Home Equity Access Scheme (HEAS) is becoming more popular as income-poor retirees look for ways to improve their retirement income and lifestyle. It operates alongside downsizer contributions as a way to access equity from the home, but HEAS recipients can access the equity from their property without having to sell it. 

Iress has seen requests for HEAS modelling increase over the years, ramping up since the scheme's expansion in 2019. Many Australian financial service licensees were cautious about recommending the scheme to their clients without also holding an Australian credit license (ACL) – however, thanks to financial planner Michael Miller, ASIC clarified in December 2022 that planners can advise on HEAS without an ACL. 

How HEAS works

The rules for HEAS  are outlined on the Services Australia website and the Guide to Social Security Law. 

In many ways, the HEAS is similar to a reverse mortgage. HEAS is a loan secured against a property and the interest accumulates with no need to make repayments until the property is sold or the recipient passes away. However, the HEAS is offered through Centrelink, it has a low interest rate compared to most reverse mortgage offerings and it provides less access to lump sum amounts than a reverse mortgage.

The HEAS allows eligible pensioners to draw down a fortnightly loan against their property to top up their income support pension to up to 150% of the maximum age pension. Despite the name of the scheme, any freehold title Australian real assets the pensioner (or their partner) owns can be offered as security – not just the principal home.

The scheme was previously called the Pension Loans Scheme until 1 July 2022.  Prior to 1 July 2019, only those whose pension was reduced by the assets test could access the scheme and the top-up was limited to 100% of the maximum age pension rate. 

From 1 July 2019, the available top-up increased to 150% of the maximum Age Pension, so the scheme became available to self-funded retirees as well as those on income support. Since 1 July 2022, Centrelink allows pensioners to take a lump sum  advance of the next 26 fortnightly payments, up to 50% of the maximum annual rate of pension, and a no negative equity guarantee was also introduced.

To qualify for HEAS, a pensioner or their partner needs to own a property to offer as security and be eligible for the age pension, or be eligible for disability support pension or carer payment if their partner is eligible for the age pension. 

Centrelink calculates the maximum loan that can be drawn down based on the value of the property offered as security, less any existing secured loans. The maximum loan calculation also uses the recipient's age (or their younger partner's age) and the pensioner can set a 'nominated amount,' to be excluded from the property's value when calculating the maximum loan, so more equity can eventually be passed on to beneficiaries. 

The nominated amount is not indexed. The no negative equity guarantee ensures the amount owed on exit from the scheme will not exceed the market value of the property, less any pre-existing non-HEAS encumbrances.

Centrelink accrues compound interest on the HEAS loan each fortnight and the rate is set by the relevant Minister. Since 1 January 2022, the interest rate is 3.95%. 

Now modelled in Xtools+

We introduced HEAS modelling to Xtools+ in Xplan  23.10.292, so: 

• Instead of using Centrelink's calculator to calculate the maximum loan amount, you can use Xtools+
• Instead of working out the difference between the calculated age pension entitlement and 150% of the maximum age pension, you can just get Xtools+ to do it!
• Instead of having to look up the HEAS interest rate, you can rely on Xtools+ legislative data to model the correct rate.

One way to model it is to click on the hyperlinks in the Income Support section. You can also navigate to Input > Liabilities > Home Equity Access Scheme:

You can view the calculations at Display > Individual > Liabilities > Home Equity Access Scheme and the charts can be found at Chart > Liabilities > Home Equity Access Scheme: 

For more details about the Xtools+ modelling, please login to Iress Community and view this article.

As you can probably see from our latest development, Iress is all about empowering financial planners to give excellent advice that helps all sorts of Australians make financial decisions, whether it's about acquiring a financial product or accessing government support. We hope this new feature helps you expedite advice for clients making those decisions, and we’re keen to hear whether it's working for you.

Please feel free to comment below on your own experiences with advice about HEAS. For example, we’d like to know: 

• Do you already provide advice about HEAS? 
• Are you planning to increase advice on HEAS? 
• If not, what’s getting in the way? 

Is this something you’d like to be able to model in Cashflow Visualise? If not, what would you like in its place?