Aged care: J. Rawl­ing & R. Horin

Find­ing an aged-care fa­cil­ity can be daunt­ing and costly, so it pays to get good ad­vice

Money Magazine Australia - - CONTENTS - JOHN RAWL­ING AND ROD HORIN John Rawl­ing and Rod Horin are aged-care con­sul­tants at Joseph Palmer & Sons (Vic), in­vest­ment man­agers and aged-care spe­cial­ists.

Slowly, some might say stealth­ily, the govern­ment is putting a greater onus on Aus­tralia’s el­derly – and their fam­i­lies – to stump up a greater amount for their aged-care fees. On Jan­uary 1 this year, the govern­ment in­tro­duced rules that made it harder for peo­ple who are en­ter­ing res­i­den­tial aged care to col­lect a pen­sion. More than 100,000 Aus­tralians lost their pen­sions and more than 200,000 had their pen­sion re­duced as a re­sult of the new rules. Now more peo­ple will have to sell their fam­ily homes to fund their aged-care re­quire­ments.

Be­fore Jan­uary 1, any per­son pay­ing part of their re­fund­able ac­com­mo­da­tion de­posit (RAD, for­merly known as the bond) by way of a daily pay­ment had their fam­ily home ex­empt from the as­sets test, and any rental in­come from the fam­ily home was ex­empt from the in­come test. The as­sets test and in­come test de­ter­mine the size of a per­son’s pen­sion so hav­ing ex­empt as­sets and in­come en­ti­tles you to a higher pay­ment. For those en­ter­ing res­i­den­tial aged care af­ter the start of this year, the fam­ily home be­came ex­empt from the as­sets test for two years only, and there­after fully as­sess­able at its mar­ket value. Also, any rental in­come from the fam­ily home be­came im­me­di­ately as­sess­able un­der the in­come test.

Fi­nally, the as­set test thresh­olds were in­creased for all pen­sion­ers – sin­gles, cou­ples, home­own­ers and non-home­own­ers. For a sin­gle home­owner, it was in­creased from $209,000 to $250,000. The ta­per rate, which de­ter­mines how much of a pen­sion is lost if as­sess­able as­sets are above the thresh­old, was in­creased from $1.50 per $1000 above that thresh­old to $3 per $1000, the rate that ap­plied be­fore the 2006 bud­get.

Con­sider the case of a pen­sioner en­ter­ing res­i­den­tial aged care with a home worth $400,000, a bank ac­count with $20,000 and rental in­come from the home to­talling $12,000. Un­til the end of 2016 the pen­sioner would have con­tin­ued to re­ceive a full age pen­sion ($888.30 a fort­night, or $23,095.80 a year) in­def­i­nitely. Un­der the new rules, the age pen­sion will be re­duced by $155.49 a fort­night (to $732.81 a fort­night, or $19,053 a year) for the first two years, and then the pen­sion will dis­ap­pear to­tally af­ter two years.

The new rules are part of a long-term plan by the fed­eral govern­ment to make peo­ple more re­spon­si­ble for the over­all cost of their aged care, which in turn will re­duce the amount of the as­sets they can leave to their chil­dren.

The cost to the fed­eral govern­ment to fund aged care is in­creas­ing by roughly $1 bil­lion a year. Ac­cord­ing to the re­cent bud­get pa­pers, growth in fu­ture years is “par­tially mod­er­ated” by the changes on Jan­uary 1, and the in­crease in the age pen­sion age.

One of the govern­ment’s new ini­tia­tives in the bud­get was the in­tro­duc­tion of an ad­di­tional non-con­ces­sional su­per­an­nu­a­tion con­tri­bu­tion of up to $300,000 from the pro­ceeds of the sale of the fam­ily home to en­cour­age older cou­ples to down­size. These in­cen­tives are ex­pected to cost the govern­ment $30 mil­lion over the next four years and of­fer some pos­i­tive so­cial ben­e­fits, in­clud­ing mak­ing large homes avail­able to younger gen­er­a­tions. How­ever, there is an un­quan­ti­fied pay­back to the govern­ment fur­ther down the track. The funds freed up by down­siz­ing will find their way into in­vest­ments that are as­sess­able for the pen­sion. So, in the fu­ture, many of these peo­ple will no longer qual­ify for a full or part pen­sion.

As more and more Aus­tralians are liv­ing longer, aged care is ce­ment­ing it­self as a growth in­dus­try. The num­ber of peo­ple in aged care is ex­pected to triple over the next 35 years, from 225,000 to­day to 700,000 in 2050. Un­for­tu­nately, the in­dus­try is be­com­ing more com­plex – and the rules in their cur­rent form test the most fi­nan­cially lit­er­ate of peo­ple. Clients – usu­ally adult chil­dren who are time poor and un­der duress as a par­ent lies in hos­pi­tal – have to find a suit­able aged-care fa­cil­ity and then ne­go­ti­ate the RAD with an aged-care provider, as well as charges in­clud­ing daily fees, ex­tra-ser­vices fees and means-tested fees.

By far the largest cost of aged care is the RAD. This can be as high as $2 mil­lion to se­cure a room in an aged­care fa­cil­ity. Many fa­cil­i­ties pre­fer the bond to be paid as a lump sum up­front, but it is pos­si­ble to choose to pay in­ter­est pay­ments only, or pay with a com­bi­na­tion of lump sum and in­ter­est pay­ments.

In many cases, in or­der to de­ter­mine the means-tested fee a Cen­tre­link form must be down­loaded and com­pleted. Its size and com­plex­ity – 28 pages and 145 ques­tions – tests the most pa­tient and nu­mer­ate of peo­ple. In re­cent months, we have given ad­vice to three tax part­ners from big ac­count­ing firms, all of whom found this form – and other parts of the aged-care ac­com­mo­da­tion process – too com­pli­cated to deal with. They were also con­cerned that there were as­pects of the process that they were un­aware of and that could cost their fam­i­lies a sig­nif­i­cant amount with­out them even know­ing.

The govern­ment is cur­rently con­duct­ing a ma­jor re­view into aged care, with a re­port ex­pected to be de­liv­ered in Au­gust 2017.

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