In mid-2021 Centrelink implemented an online calculator for the Home Equity Access Scheme (HEAS). The calculator is an improvement to the experience for seniors who want to understand what the HEAS means for them.
You can access Centrelink’s HEAS/PLS calculator here:
This initiative is a result of recommendations that Pension Boost made to the government and Centrelink in 2020 and follows the lead we set with our own Calculator which we launched in 2019 and have updated with changes to the scheme since.
The Pension Boost HEAS calculator was modelled off the ASIC MoneySmart Reverse Mortgage1 Calculator which includes assumptions regarding inflation and property growth.
Pension Boost’s HEAS Calculator can be accessed here:
We're happy to see the government acting on our recommendation to make a calculator available, however omitting inflation and property growth has meant the two calculators project a different result with the Centrelink calculator providing less information for seniors on the impact that inflation, property growth and the HEAS will have on their property equity over time.
Want to see how different this could look?
We used the following customer case study to draw a comparison:
Estimated home value:
Maximum HEAS payment per fortnight (1)
$744.40 combined (ie $372.20 each)
Term that HEAS payments could be received (2)
Feb 2026 (~4 years)
Maximum Loan Amount (3)
At Year 4:
At Year 20:
$375,000 (ie 2 x $187,500)
Estimated Value of home in 20 years (3)
Estimated HEAS loan balance after 20 years (3)
Net equity (home value less secured loans) in your home after 20 years (3)
Net equity as % of home value in 20 years (3)
As the table above demonstrates there are material differences in the two HEAS calculators which can be attributed to the following (numbering relates to the (#) reference in the table):
- There is an error in Centrelink’s calculator as the default level of maximum HEAS payment ($1,700.10 per person) is shown to users in all cases (i.e. for singles and couples) and is simply wrong. We highlighted this error to Centrelink in July 2021 but the error is yet to be corrected.
The current (as at 20 March 2022) maximum HEAS payments are:
Full age pension couple: $744.40 per fortnight combined (ie $372.20 each)
Full age pension singles: $493.80 per fortnight
Self-funded couple:$2,233.20 per fortnight combined (ie $1,116.60 each)
Self funded single: $1,481.40
All being materially lower than the $1,700.10 default used by Centrelink
The overstatement of HEAS payments by Centrelink materially impacts the projections.
- Pension Boost’s calculator correctly calculates the maximum HEAS payment level whether the user is on a full age pension, part pension, or self-funded. Given this is materially lower than Centrelink’s calculator the HEAS payments under our calculator will be projected to last for a longer period of time.
Pension Boost also allows for inflation to increase HEAS payments (the HEAS maximums move in line with any CPI increases to the Age Pension) at the rate of 2.5% per annum. Whereas Centrelink’s calculator does not adjust for inflation so HEAS payments are assumed to stay constant.
- If we used the appropriate maximum HEAS payment level in Centrelink’s calculator the payments would last for approximately 22 years (vs 4 years) which is still well short of the 33 years projected by Pension Boost.
The key driver of this difference is that Pension Boost’s calculator assumes that real property values will increase over time. It should be noted that we assume a property growth rate of 3% per annum which compares to the long term Australian national residential property growth rate average of 6.8% pa for houses and 5.9% pa for apartments2.
Centrelink's calculator makes no allowance for growth in property values. We have also raised this inconsistency with that of ASIC’s approach with Centrelink.
As evident in the Maximum Loan Amount (MLA) calculations (at Year 4) seen in the above table, not allowing for any property growth has an adverse impact. The MLA is a factor of the net equity value of a user’s property. The MLA factor is not ‘set and forget’ as it increases each birthday (of the younger person if a couple). For example, a 70-year-old has a factor of 30.8%, an 80 year old 45.6% and a 90 year old 67.5%.
Because no property growth is allowed for in Centrelink’s calculator it materially underestimates the MLA which adversely reduces the period over which HEAS payments might be received.
Both calculators assume the current HEAS interest rate of 3.95% per annum, upfront charges ($600 for Pension Boost vs $500 Centrelink) and disclose the HEAS loan balance over time broken down between cash payments made, interest accrued and fees.
Hopefully, we've explained why there are materially different projected HEAS outcomes and outlined the potential consequences. Whilst we are obviously prejudiced, given our HEAS calculator is aligned to the approach adopted by ASIC for its MoneySmart Reverse Mortgage Calculator we strongly believe that seniors’ interests are better served using our calculator than Centrelink's.
What we are concerned about, and have raised with Centrelink, is that senior consumers could be confused or, at worst misled, as to what the HEAS could mean for them and their families financially when considering the HEAS as an option to help fund their retirement.
Try our HEAS calculator today to find out if you're eligible.
TRY THE HEAS CALCULATOR
All calculators have their strengths and weaknesses and cannot predict the future outcomes. They should be considered as a guide to possible outcomes. Past performance indicators are not indicators of future performance.
1 Commercial reverse mortgage providers are required to provide prospective customers with the MoneySmart calculations prior to entering into a reverse mortgage loan.
2 Source: Aussie Home Loans - CoreLogic: 25 Years of housing trends (1993-2018)