What a minefield the aged care sector can be for families who are considering this for a loved one! There is a multitude of forms, fees and processes that can overwhelm and confuse.
Aged care fees can be difficult to understand, as there are a number of elements to the final figure and one resident’s fees cannot be compared to the next. This is due to the means testing that occurs and the differing room costs.
There are several myths about the cost of aged care that you have no doubt heard from a friend or family member. Scott has many years of experience with Centrelink and the Aged care process and has taken to teaching Elise the many facets of this growing industry.
ET: Scott, I’ve heard that the ongoing fees of aged care living is only 85% of the Age Pension. Is that right?
SK: There are four potential fees that are charged for residing into an aged care facility. How they choose to pay for the accommodation will affect the ongoing fees and therefore it is important to think carefully about how to best manage the costs over time. The four fees are explained further below:
- Basic Daily Care Fee – this fee is calculated at 85% of the full Age Pension. The fee is fully payable even if your loved one only receives a part pension. Furthermore, this fee is payable by all residents that enter care.
- Means Tested Fee – this fee is as described and should your loved one’s assets exceed the thresholds set by the government/ Centrelink, they will be liable to pay an additional daily fee. This fee has a yearly cap as well as a lifetime cap and is generally affordable and within their means.
- Extra Services Fee – this fee may be charged by the aged care facility and is in relation to extra benefits they may offer, such as a glass of wine with dinner or a newspaper daily.
- Accommodation Payment (known as RAD or DAP depending on your choice of funding) – The Refundable Accommodation Deposit (RAD) is the cost of the room in the facility. If paid in full, the DAP or Daily Accommodation Payment doesn’t apply. The DAP is essentially interest payments made on the portion of unpaid deposit. This means that if the room has a cost (RAD) of $400,000 and a partial RAD of $100,000 is put down, the interest payments (DAP) are due on the unpaid $300,000. It is important to note that the interest rate charged on the unpaid portion is quite high and therefore a conversation should be had before choosing this option to ensure this is right for the resident.
Elise, you can see there are quite a few elements to remember here. The 85% of the pension payment that you mentioned relates to the Basic Daily Care Fee only.
ET: This aged care business sounds expensive! Surely, only the rich can get into an aged care facility?! What if you’re not a millionaire?
SK: The Government does in many cases subsidise the costs associated with providing aged care for those residents who are unable to afford the Accommodation Payments (RAD/DAP). Furthermore, aged care facilities are required to set aside a certain percentage of beds for “low means” residents, ensuring everyone has equal access to care. As stated above, these residents will be required to pay the Basic Daily Care fee on an ongoing basis.
This means that everyone can access safe care and their families can rest easy knowing that their loved one will receive the support they need as they enter the elderly years of life.
ET: What happens to the deposit money that is paid to the aged care provider? Do they keep it? What about inheritance and the estate matters?
SK: All money paid as a RAD lump sum is refunded to the resident when they leave the aged care facility, or to their estate when they pass away. Furthermore, the RAD paid to the facility is protected by the government and therefore if the facility was to get into financial difficulty, residents funds are guaranteed.
ET: These fees sound like a lot, do residents need to sell their homes to enter into aged care?
SK: Selling the family home and using the proceeds is a common strategy to fund the costs of aged Care. However, depending on the cost of the care required and the financial situation, selling the home may not be required. Paying accommodation costs via an ongoing DAP may ensure that significant lump sum is not needed. Alternative assets may also be used to pay for the accommodation costs allowing the family home to stay just that.
ET: Centrelink base the fees on assets in the resident’s possession. Would giving money or assets away avoid or lower fees?
SK: As with most things in life, money buys choice. Having assets at their disposal should ensure they can choose an aged care facility that is close to family, can provide the required care, and that they are happy with. Giving away assets may not improve the financial position, in fact, it may mean that the choice of facility is limited to ones that are far away from family and the areas that loved ones may have spent much of their life. It can also have significant implications from a Centrelink and an aged care fee perspective. One such disadvantage of giving assets away is that they are calculated as being in the resident’s possession for 5 years after being gifted. This means that pension entitlements could be less due to an asset that is no longer held but is assessed with the asset pool. The same rules apply for the calculation of some aged care fees.
Elise, it’s imperative that we assist our clients to realise that having more assets and self-funding their retirement is a far better outcome with greater choices for care and facilities than trying to give it all away and rely on the government for those same needs. If you want a job done right, do it yourself!
ET: This is so daunting! There is so much to know, a lot of paperwork and I don’t think it’s all necessary. What do we advise our clients to do?
SK: There are several different forms for all types of situations. An assessment of Income and Assets will need to occur, and this may involve paperwork. Once completed and submitted to Centrelink, the results will take around 6 weeks to be presented and are valid for 4 months This can be done prior to the decision to move into an aged care facility. This will be a great tool for approaching facilities with, allowing them to be aware of the financial circumstances and how the resident will be charged for their stay. Once they have this and are armed with the knowledge of what is affordable, going to aged care facilities is an easier process and time can be taken to select the one that is right for the family member.
Of course, sometimes aged care is an urgent need, and cannot be foreseen and planned for. Don’t worry, not having all the correct forms etc will not prevent entry to aged care as soon as is required.
ET: Thanks Scott! I feel like I’m getting it now. It’s great to be able to put a client’s minds at ease during such a stressful time. I think the aged care meetings you hold are definitely valuable to our clients, past and present. Hopefully, I can assist clients in the future myself.
SK: I agree, making the complex seem simple is my motto and aged care certainly is a complex area! My experience has been built over 25 years of working at Centrelink and as a financial planner in this space. You’ll get there in time!
There are no doubt some further questions that you may have, and we are here to assist you with the transition of your loved one to an aged care home. We are available to talk through your options for financing the move and to fill in the forms if you are finding it daunting. Please contact our advisers should you wish to discuss your aged care options; we are happy to help you during this difficult time. Our simple, low cost, one-off fee approach to aged care and our significant experience in the area should put you on the right track quickly.
