Planning For Aged Care
28 May 2013
Australia’s ageing population is bringing the issue of aged care into sharper focus for us all. The likelihood that we will have to place a parent or relative into an aged care facility, or indeed consider this as part of our own retirement planning is increasing.
The complexity of fees and options for differing levels of care and services makes it difficult to see the 'wood from the trees' when considering entry to an aged care facility.
The safest advice Boyce Financial Services can offer is to ensure you seek financial advice before you make any decisions - aged care is a complex system with myriad issues to be considered.
Choices for the Elderly
We are fortunate in Australia to have an aged care system that supports the elderly to either remain in their own homes if they are able to do so, or to enter an aged care facility to access care.
Prior to entering an aged care facility a person’s physical and mental health must be assessed by an Aged Care Assessment Team (ACAT) to determine if the level of care required is ‘high’ or ‘low’ level care.
Hostels are ‘low level care’ facilities and provide personal care, accommodation and some level of nursing care. Nursing homes, categorised as ‘high level care’ facilities, provide 24 hour nursing care and accommodation. The fees and charges associated with hostels and aged care facilities differ slightly but both can be quite costly. The information below relates to aged care facilities that are accredited and funded by the Commonwealth Government.
Hostel Care Costs
- The basic daily fee (or standard resident contribution) is paid by all residents towards the costs of daily living such as meals, cleaning, laundry and heating. The fee is equivalent to 85% of the basic single Aged Pension.
- In addition, residents are asked to pay an income tested fee dependent on their income and the level of care they require. This fee is paid directly to the aged care provider and is currently set at a maximum of $50.57 per day.
A person entering a hostel may be asked to pay an accommodation bond as a charge for entry into aged care accommodation. There is no upper limit to the bond amount, but the individual must be left with a minimum of $40,500 (equivalent to 2.25 times the basic annual premium).
To calculate the bond, a person’s assets are generally assessed in the same way as for Centrelink or the Department of Veteran Affairs pensions. The calculation usually includes:
- The family home for the majority of single elderly, although in the case of married couples the value of the home will usually be included when the last member leaves the home to move to a facility.
- Superannuation benefits, which are counted regardless of the person’s age if a condition of release has been met.
The bond may be paid as a lump sum or by periodic payments, or a combination of the two.
- If paid as a lump sum, the bond is held by the facility throughout the time the individual is a resident. The facility may deduct a ‘retention amount’ of up to $3,876 per annum for a period of up to five years.
- If the periodic payment option is chosen, the aged care facility will charge interest (currently at 6.95% but reset quarterly) based on the forgone interest of not having a lump sum amount to invest. The resident is locked into the interest rate charged at their time of entry, which is a huge disadvantage for those who move into facilities during a period of high interest rates.
Nursing Home Costs
Daily care fees for nursing homes are calculated in the same way as for hostel residents, as described above.
Nursing homes generally impose an accommodation charge (as opposed to a bond). For those with assets above $112,243.20 (as at 20 March 2013) the maximum daily charge is $33.29 per day.
The Family Home
When a member of a couple enters an aged care facility, the primary home continues to be exempt from the Assets Test indefinitely as long as their spouse continues to reside in the home.
If both enter a facility, or the resident is a single pensioner, Centrelink will continue to treat the home as the principal place of residence for two years from the time the person leaves the home.
This two year exempt period may be increased where:
- A person is entering a nursing home and paying or accruing liability to pay an accommodation charge, and renting their former home. The home remains the principal residence (and therefore exempt from the assets test) whilst these two conditions apply.
- A person is entering a hostel and pays some, or all, of the bond by periodical payment, whilst renting out their former home. Only part of the bond needs to be funded via periodic payment for this exemption to apply.
Under both options the rental income doesn’t count for the Income Test or income tested fee whilst the two conditions are met. Also, the exempt amount of rent may be greater than the accommodation charge or periodic payment and still not be counted.
Whilst the home is classed as an exempt asset, Centrelink continues to assess the resident’s assets under the ‘homeowner’ Asset Test thresholds and as such they may continue to receive the same level of Age Pension (if not more) after moving into a facility, whilst maintaining their biggest asset.
If the resident sells the family home when they enter the facility, the proceeds are counted as an asset from the time of sale and he or she is assessed as a non-homeowner (regardless of the amount of bond paid). The effect of the sale proceeds on a residents’ aged care fees and Age Pension is fully dependent on how the funds are invested.
Weighing Up the Options
- If a person wishes to keep the family home over the long term, a combination of a lump sum and period payments will often work best as both the bond and the home remain exempt from Assets and Income Tests. This does require that the person has sufficient assets to pay part lump sum and cover the periodic payments.
- If the entire accommodation bond is paid as a lump sum, the home will count as an asset after two years plus the rental income will be assessed as income and affect both the Age Pension and aged care fees. If however, the home is to be sold in the near future, this option may be best depending on how the funds are to be invested.
- If the entire bond is paid by periodic payment, there is a high interest cost involved and as well, the person’s Age Pension may be reduced and aged care fees increased as more assets may be assessed under the Income and Assets tests.
To help ensure you make the right decision it is essential to seek advice prior to entering into an aged care facility agreement. Speak with your local Boyce Financial Services Advisor to ensure that you optimise your family's financial situation and avoid the inherent traps in the legislation relating to aged care.
Boyce Financial Services Pty Limited is an Authorised Representative of Lonsdale Financial Group Limited, ABN 76 006 637 225, AFS Licence No. 246934.
Sources: Challenger Guide to Aged Care Facilities (www.challenger.com.au); Lonsdale Financially Speaking Newsletter |Autumn Edition 2013.