In a More Caring World

Over the past year, the royal commission into aged care has conducted hearings in Adelaide, Sydney, Broome, Perth, Darwin, Cairns, Mildura and Brisbane. Commissioners Richard Tracey and Lynelle Briggs are required to provide an interim report by the end of October and a final report by April 30 next year.

One thing is almost certain: the cost of aged care will go up. The commissioners will likely highlight inadequate carer-to-resident ratios and underqualified staff in many places. The costs to rectify these will be considerable, as well as the inevitable increase in compliance costs. The federal government will not want to pay out much more to fund aged care, so most of these increases in costs will be passed on to consumers.

Aged care remains labour intensive, land is expensive to buy and buildings are expensive to build and maintain. The owners of such facilities expect to make a return on their investment. 

One other thing is certain: there will be no slowing down in the ageing of Australia’s population, so demand for aged care beds will outstrip supply and refundable accommodation deposits (RADs, formerly known as bonds) will increase.

As Australians live longer, more and more will end up in aged care. The number of people in permanent aged care is expected to nearly triple in the next 30 years, from 250,000 today to 700,000 in 2050. The industry is complicated and many decisions must be made, often involving large sums of money.

Here are the 10 most common questions that we hear at Clarity Aged Care Advisors, and our answers.

Will I need to sell the family home to pay the refundable accommodation deposit?

This is the most common question we get and the short answer is, not necessarily. The family home is often a couple’s most valuable asset and many advisers wrongly assume that it needs to be sold to provide funds for RADs. The key driver is to make sure that the home, like any valuable asset, generates a financial return. This return takes the form of rental income and capital growth (which RADs certainly don’t provide). The home is treated on a concessional basis for the age pension and aged care fees. For age pension purposes, if you move into care the former home’s value will be excluded from the age pension assets test for two years, although any rental income will be assessable under the income test. The value of the home is capped at $168,351 for aged care means testing and any rental income is assessable.

To understand the financial implications and alternatives to selling your family home, check out The Complete Guide to Aged Care Costs in Australia: Understanding the Financial Options and Obligations.

Is the RAD negotiable?

Yes. RADs can be as high as $2 million to secure a bed in an aged care facility. In many cases these RADs are negotiable, and at times can be as much as halved. Willingness to negotiate on RADs depends very much on the demand for, and the supply of, beds in a particular aged care facility.

What alternatives are there for paying the RAD?

Many facilities prefer the RAD be paid upfront as a lump sum. However, it is possible to choose to pay interest only or with a combination of lump sum and interest. A bank guarantee is not an alternative. The interest rates you pay are set under the Aged Care Act – currently 5.54%.

Will my family get all of the RAD back?

In a government-accredited aged care facility, the accommodation deposit is fully government guaranteed. Before July 2014, the accommodation bond repaid to the family would be reduced by retention amounts deducted by the aged care facility. Since July 2014, any lump sum paid as a RAD is now fully refundable and generally repaid 14 days after a person leaves the facility or, where the resident has died, to their estate when probate has been granted.

What is the means-tested fee?

This fee is set by the government and collected by the aged care facility based on an individual assessment for each resident. It is an attempt by the government to ask residents with the financial capacity to contribute to the cost of care. This fee can range from nothing to a maximum of $248 a day, capped at $27,532 a year or $66,078 over a lifetime (just over two years of payments).

Why does the government charge different means-tested fees?

While all residents pay the same standard daily care fee ($51.21 a day or 85% of the full age pension), the means-tested fee varies from person to person depending on their assets.

Why is the means-tested fee so high and how do I reduce it?

The fee is based on the income and assets of the aged care resident, so it increases as the resident’s assessable assets and income increase. For example, a resident on a part age pension with assets totalling $200,000 and deemed to be earning $28,825 a year will pay $1.17 a day ($428 a year) in aged care, while a resident with assets totalling $1.2 million and deemed to be earning $34,964 a year will pay $60.70 a day ($22,156 a year). One option to reduce the means-tested fee is to buy an aged care annuity, if appropriate. We recommend getting financial advice in relation to this product.

What is the extra services fee and should I pay it?

The fee, which can be as much as $120 a day, is supposed to give the resident extra services, including more activities and access to people such as podiatrists, hairdressers, etc. If your facility is charging an extra services fee, you should ask what services are being delivered and assess whether or not you are receiving value for money. This fee, too, may be negotiated.

Paying daily fees will impact my cash flow. What strategies are there for dealing with this?

It is possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on your cash flow. This means, of course, that less of the RAD will be returned at the end of the care period.

What implications are there for my social security or pension?

The RAD is an excluded asset for social security purposes. Therefore, in some cases, where existing cash is used to pay for a RAD, it can result in a new or increased pension entitlement. More often, a family home is sold to fund the RAD. In this case, while the home is excluded, the proceeds from its sale are counted as an asset. As a result, the cash remaining after paying the RAD can often result in a pension being reduced or lost entirely. However, there are ways to maintain, or even increase, one’s current entitlements.

Note: Figures are accurate as of the publication date