Aged care decisions, whether they are for yourself or a loved one, are complex and the choices people face are far more diverse than simply stay at home or move into an aged care facility. Of course if the decision is made to move to residential aged care, that doesn’t necessarily mean that the decisions become easier. The way in which you pay for care can impact on your pension entitlement, tax, estate planning wishes and even the cost of care itself.
Firstly, it’s important to understand that the cost of residential aged care has three components: the cost of accommodation, the cost of care and the cost of personal expenses.
You can choose to pay for your cost of accommodation by a Lump Sum, Daily Charge or a combination of the two. Aged Care Facilities are required to publish the price of their accommodation on their website and in their brochures as well as on the government’s My Aged Care website. The daily charge is calculated based on the amount of lump sum outstanding at a government set interest rate, as at 20 September 2015 it is 6.14%. For example, if the lump sum amount is $350,000, the Daily Accommodation Payment would be $58.88p.d. But you may decide to pay $200,000 by lump sum and $150,000 by daily charge of $25.23p.d.
Any amount you pay as a lump sum will be exempt from the calculation of pension entitlement. However, it will be included in your assets for the aged care means test. Your lump sum is guaranteed by the government and will generally be refunded to you or your estate shortly after you leave the facility. A common misconception about aged care facilities is “if I don’t have any money I won’t get in”. In reality most aged care facilities need to keep a ratio of people who are financially disadvantaged to receive funding from the government. Known as low means residents, these people pay a calculated amount (sometimes zero) based on their assets and income. Just like market price payers, they can choose to pay for their accommodation by a lump sum, daily charge or combination.
The basic daily fee, set at 85% of the Age pension, applies to everyone. Your ability to contribute beyond the basic fee is based on your (and if applicable your partner’s) assets and income, known as the means tested care fee. Income is assessed based on Centrelink’s income test for the pension. Assets both within Australia and overseas are assessed at the market value. A capped value of $157,987 applies to your former home unless a protected person is living there. A protected person includes your spouse or dependent child or in some cases a carer or close relative.
If you are a member of a couple, your assets and income are assessed on a 50/50 basis. Your means tested care fee cannot exceed your cost of care and is capped at $25,731 annually. There is also a lifetime limit across all forms of care of $61,755.
No matter which facility you choose, you need to meet the cost of you own personal expenses. Some facilities provide extra services or additional services to their residents. These services often include a choice of meals, beer and wine at meal times, newspapers, hairdressing, massages and outings.
The services may be provided as a “set menu” or you may have the choice to receive none, some or all of the services. The range of services and the fees associated with them vary from one facility to another so you should speak to the individual facility manager. Choosing the best way to fund the cost of aged care requires specialist financial advice.