Aged Care – 40/70

Peter Cramer

40/70 – these are the ages to think about and plan re Aged Care issues.

Age 40: At age 40, children may have parents who will be approaching the age to think about aged care.

Age 70: Parents are approaching the age to think about aged care.

As of 1/7/14 the rules relating to fees and charges changed – and have become more complicated! For those in aged care before 1/7/14, they are ‘grandfathered’ and less likely to be impacted.

There are two types of fees as per the following summary –

  • 1. Accommodation Fees (for living in the Residence)
  • 2. Ongoing Care Fees (for the care received in the Residence)
Accommodation Fees Ongoing Care Fees

Entry Fee

Extra/Additional service fee

Basic Daily Fee

Means Tested Care Fee

         RAD   Everyone pays Means Tested extra
Refundable Accommodation Deposit and/or Payable where extra or optional services Payable by ALL residents Payable if Means Tested Amount is above a set figure.
A Daily Accommodation Payment Fee set by Facility. Set at 85% of Age Pension Determined by Means Testing of assets & income
Determined by Centrelink assessable assets and income Packaged extra fees or optional extras. Currently $48.50 per day.  (1.7.14) Upper limit of $25k per year and $60k over 4 years.

Note A

Note B

Note C

Note D

Note A: Accommodation cost

The accommodation cost is paid by either the RAD or the DAP or a combination of the two – totally at the discretion of the Resident. They have 28 days to tell the facility how they will pay for their accommodation after they enter.

RAD – Refundable Accommodation Bond. 100% Fully refundable to family or estate on leaving – nothing is deducted (unless there is mutual agreement to do so as a way to pay other fees). This is set by the Facility and must be advertised on the Govt Website as to what their RAD is. The maximum is $550,000. This will vary depending on the quality of the Facility.

DAP – Daily Accomm Payment. The RAD amount can be converted to a daily payment at the discretion of the resident. It is converted by reference to an interest rate factor. If the RAD was $400,000, the daily payment (DAP) would be:

$400,000 * 6.69% / 365 = $73.32 (Effectively 6.69% interest charged on the RAD not paid).

The resident could pay, say, $200,000 lump sum for the RAD and $36.66 daily payment under DAP. They can split their accommodation cost depending on their cashflow and assets.

Some things to think about and plan for:

  1. The RAD is not counted under the Pension Assets Test – so the money used to pay it reduces a pensioners assets. This may allow them to get more age pension!
  2. The previous home of the resident is counted as an asset for Pension purposes but only up to a set figure of $154,179. So if they lived in a house worth $500k then went into Care – only $154,719 would be counted as an asset. However if they sold their house for $500,000, ALL of the $500k would be counted as an asset for pension purposes and also for income deeming purposes.
  3. Generally speaking, the higher the value of the house – maybe the better it is to keep it (if the aim is to maximise or get the Age Pension).
  4. If they keep the house and don’t pay the RAD – then they have to work out where the daily Fee is going to come from. If they sell the house to pay the RAD – they may trigger a loss in Pension.
  5. The RAD is basically costing 6.69%. Can the resident invest their money to earn greater than 6.69% elsewhere or are they better to pay the lump sum RAD?

Note B: Additional Services Fee

The additional services fees can be charged by the Facility for additional and special services. This is something the resident may wish to take up – so will need to allow cash flow to meet that.

Note C: Basic Care Fee

This is automatic and payable by every resident. It is set at 85% of the Age Pension irrespective if the resident is on the Pension or not. The very poor should be able to pay as they will get the full pension and 85% will go to the facility.

Note D: Means Tested Care Fee

This is the one payment area that many will focus on – as it is only payable by those who have assets and income above set levels based upon a Means Test.

This Test is done by Centrelink. There is an income and asset test for this – based upon the usual Centrelink Age Pension Tests but with some important differences.

The income means test is the usual Centrelink Income test plus any Age Pension the resident receives (excluding the ‘minimum pension’ and ‘clean energy’ supplements). Once the deemed income is determined, it is reduced by an income free area and then 50% is excluded (as follows):

Assessed income – Income Free area * 50%

(The income free area is $24,835.20pa for singles and $24,367.20pa each for couples separated)

Under the asset means test, the usual investments, bank accounts, investment properties, cars, house contents and financial assets are included but only the first $154,179 of their house, and only that if there is NOT a Protected Person living in it (eg the spouse). The amount of the RAD is also counted.

The amount under the assets test is calculated as:

17.5% of assets between $45k and $154,179 and

1% of assets between $154,179 and $372,538 and

2% of assets above $372,538

The Means Tested Amount is: Income tested amount + Asset tested amount /364

If the Means Tested Amount (MTA) falls below a set figure ($52.49 per day) then the resident is deemed to be of “Low Means” and they only pay a lower set amount and no Means tested Fee.

If the MTA is above the set amount ($52.49 per day) then the resident will pay a MTA based on their assets and income. There is a maximum of $25,000 per annum for this and no more than $60,000 over 4 years.

There is still much wisdom in the attitude of maintaining assets or ability to pay RAD’s and DAP’s so that the prospective resident has a greater chance of selecting their retirement home! I do not subscribe at all to the idea of trying to divest one-self of assets so as to avoid having to pay too much for Aged Care needs. If Aged Care homes were full of people with little or no assets they would be almost unviable to run – and possibly the care would have to be minimal.

So ask yourself – do I want to have the best chance of my choice of which Aged Care facility in which city, or do I gift away most of my assets and do it on the cheap taking the risk that I end up in a home I don’t like far away from my family (leaving my children with more money for them to spend)?

Remember – 40/70 and plan for the possibility of aged care.

We recommend people seek expert advice in considering their respective positions, both financial, taxation, emotionally and otherwise.