Insights into aged care options
As we move through the various phases of retirement, our lifestyle and care needs will change as at some point we, or our loved ones, will need varying degrees of assistance. What type of government support is available as care needs change? What could be the costs and what might this mean to our income as we move through this journey? And, what else do we need to consider?
The three phases of retirement
There are three phases of retirement which relate directly to our health, and therefore patterns of spending:
- Active years
We’re in good health, travelling and spending time with family and friends, perhaps engaging in our community and doing the things we care about most.
- Passive years
Our health starts to decline, and we are not as adventurous. The level of activity and spending declines, although our care needs, and health spending start to increase.
- Frail years
During this phase, a higher level of help and care is needed for daily activities. The cost of care means an increase in spending which is often not planned for. Decisions tend to be prompted by crises, are rushed, and made when the person is vulnerable.
According to the Australian Government Productivity Commission’s report on Housing Decisions of Older Australians, most people strongly prefer staying in their family home, despite a common perception that such homes are too big for them as they move through these phases.
For others, age-specific housing options provide more integrated accommodation and care, and may delay entry into residential aged care.
During those frail years, where a move to residential aged care is the preferred option to receive the level of care and support that is needed, it is important to understand your choices and the possible implications of those choices now and in the future. The following looks at two common questions to be considered.
Will I still receive the age pension?
Many Australians entering residential aged care receive a full or partial pension. Often, they are homeowners and their home may be the largest asset they have. As the home is a non-assessable asset for age pension purposes it can impact their pension once the resident(s) move permanently to residential aged care. Other assets and income are also considered for the age pension such as cash, shares, furniture, cars, gifts, account-based pensions etc.
What are my options?
Keeping the family home
A single homeowner entering residential care can keep their home for up to 2 years before it becomes assessable under the pension assets test. After two years the net market value of the home is assessed. This can mean the age pension is reduced or lost. This is an important cashflow consideration for residents and their families who may wish to keep the home but need to pay aged care costs. The sole instance where the home is exempt for age pension purposes is if a member of couple goes into residential care, but their spouse remains in the home. It then becomes assessable two years after the last member of the couple leaves.
Selling the family home
Funds received after selling the family home become an assessable asset. The resident is then assessed as a non-homeowner. Based on thresholds that apply from 19 September 2020 to 30 December 2020 a single non-homeowner can then hold up to $482,500 in assets before it affects their full pension or up to $797,500 in assets before they are ineligible for any pension entitlement. In the case of a married non-homeowner couple (illness separated), this is up to $616,000 and up to $1,246,000, respectively. Financial assets are also subject to an income test. The pension payment is based on the test that pays the lowest pension entitlement.
Can making lump sum accommodation payments help?
To secure a room a resident can be asked to pay either a Refundable Accommodation Deposit (RAD) set by the aged care operator or a Refundable Accommodation Contribution (RAC) which is capped by the Commonwealth Government. Both the RAD and the RAC are considered non assessable assets by Centrelink and Department of Veterans Affairs (DVA). These payments are not assessed under the pension income test. Many aged care facilities offer a choice of RAD’s depending on their accommodation options. If a resident has funds from the sale of a home, it is often better to pay a higher RAD or the maximum RAC to retain a pension. In certain cases, a resident can obtain an age pension, when previously they were ineligible, by using their assets to pay a lump sum accommodation payment.
Selling the family home and investing the funds
If the family home is sold and the funds are held in cash or invested to pay ongoing aged care fees, then the assets will be subject to pension asset and income test assessment. It’s important the resident is aware of their aged care options and how they apply to their circumstances before making any decisions. If not, it can have consequences on their age pension, care, and accommodation costs as well as their cash flow.
Moving to residential aged care can impact age pension, the resident’s home, care, and accommodation costs as well as their cash flow. It’s important you are aware of your options and how they apply to your circumstances. To find out more please call your adviser to get information about our specialist lifestyle and care division.
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