Money Australia – July 2017

will reduce the amount of the assets they can leave to

their children.

Thecosttothefederalgovernmenttofundagedcare

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 fur-

ther down the track. The funds freed up by downsizing

will find their way into investments that are assessable

forthepension.So,inthefuture,manyofthesepeople

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. Unfor-

tunately, 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

aretimepoorandunderduressasaparentliesinhos-

pital – 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.

ByfarthelargestcostofagedcareistheRAD.This

canbeashighas$2milliontosecurearoominanaged-

care facility. Many facilities prefer the bond to be paid

asalumpsumupfront,butitispossibletochooseto

pay interest payments only, or pay with a combination

of lump sum and interest payments.

Inmanycases,inordertodeterminethemeans-tested

feeaCentrelinkformmustbedownloadedandcompleted.

Itssizeandcomplexity–28pagesand145questions–

teststhemostpatientandnumerateofpeople.Inrecent

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

ofandthatcouldcosttheirfamiliesasignificantamount

without them even knowing.

Thegovernmentiscurrentlyconductingamajorreview

into aged care, with a report expected to be delivered

in August 2017.M

Finally, the asset test thresholds were increased for
allpensioners–singles,couples,homeownersand
non-homeowners. For a single homeowner, it was
increased from $209,000 to $250,000. The taper rate,
whichdetermineshowmuchofapensionislostif
assessableassetsareabovethethreshold,wasincreased
from$1.50per$1000abovethatthresholdto$3per
$1000,theratethatappliedbeforethe2006budget.
Considerthecaseofapensionerenteringresidential
agedcarewithahomeworth$400,000,abankaccount
with$20,000andrentalincomefromthehometotalling
$12,000.Untiltheendof2016thepensionerwould
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
afortnight(to$732.81afortnight,or$19,053ayear)for
the first two years, and then the pension will disappear
totallyaftertwoyears.
Thenewrulesarepartofalong-termplanbythe
federalgovernmenttomakepeoplemoreresponsible
for the overall cost of their aged care, which in turn

KEY

THINGS

WHEN

PLANNING

FOR AGED

CARE

1

It’s best not to

be rushed when

considering aged

care. Start preparing

well in advance.

2

The location of

an aged-care

facility is important.

The closer it is to

family members the

better.

3

Don’t sign

anything you

don’t understand.

4

Ifyouhavetwo

parents alive,

they are likely to age

at different speeds.

This will add to the

complexity when

theyenteragedcare.

5

You don’t

need to tell an

aged-care facility

about your financial

situation.

6

Oftenitisnot

necessary to

complete or submit

the Centrelink form.

7

Ifyoucan,try

before you buy.

Many aged-care

facilities offer respite

options.

8

Don’tbeafraid

to negotiate on

the RAD.

9

Consider

different

strategies for

handling monthly

cash flow.

10

Aged care is

complex and

no one can know it

all – get advice.

JohnRawlingandRodHorinareaged-careconsultants

atJosephPalmer&Sons(Vic), investment managers

and aged-care specialists.