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Self Managed Super Fund (SMSF) Article
The Aged Care System
By Tony Negline.
This article may be out of date.
2nd August 2006
What is the difference between a nursing home and a retirement village, how much do they cost and how is that cost worked out? Recent research shows that in the retiree community there is much doubt and confusion about exactly what retirement villages are, what services they provide, how much they will really cost and what impact they will have on aged pension benefits.
Firstly lets deal briefly with cost. Aged care is heavily subsidised by many levels of government. In most cases the amount of subsidy a person will receive depends on their income and assets when they enter a home. A higher government subsidy means the less an aged care resident will pay out of their own pocket. Knowing how income and assets test work is therefore important. We’ll look at this in more detail in a moment.
A nursing home – officially called a high level care home – provides access to constant care. A hostel – officially called a low level care home – provide a degree of independence but care is available if required.
The costs of aged care accommodation is broken down into three different regular payments and a one-off payment which may have to be paid when a person enters a home.
The regular fees are the basic daily care fee, the daily income tested fee and accommodation charge. The one off payment is called the accommodation bond. Each year these amounts are indexed by increases in the Consumer Price Index.
The basic daily care fee can be between $29.25 and $36.48 per day. The lower fee will be paid if a person receives the aged pension and pays an accommodation bond of less than $125,500. The higher basic daily care fee is payable if a person fails these tests. Many aged care homes limit their accommodation bonds to ensure their residents don’t face the higher basic daily care fee.
The income tested fee can be between $0 and $51.27 per day for a couple and $22.56 for a single person. If a person receives the full aged pension then they will pay $0. The higher costs are paid by people who have income above certain thresholds.
The next daily fee is the accommodation charge which may be paid by people who enter high level care homes. It can vary between $0 and $17.13 per day.
If a person is assessed as having a low income then their annual fees might be as low as $10,675. On the other hand a person who has a high income can pay $27,800 per annum. Minimising income is therefore very important.
How is the level of income worked out? A person’s income is worked out by Centrelink and they use the same rules as the aged pension income test. Special rules apply if the family home is rented out after being vacated to enter an aged care home.
What about the accommodation bond? This is paid by people entering a low level care home. The size of the bond depends upon a person’s assets. After paying the bond a person must have at least $31,500 in assets.
How are a person’s assets worked out? As part of this year’s Federal Budget the government announced two changes which make important changes to how a person’s assets are calculated for aged care accommodation purposes.
The first change says that if a person disposes of assets for less than the assets market value then the market value will be counted for a period of time and the asset will be deemed for income test purposes. Before this change it was common for future aged care residents to gift money to their children so that upon assessment they would have fewer assets.
The second change involves certain types of annuities and pensions payable for life or a certain term. Before budget night these products were not counted as assets for aged care assessment purposes. The government has decided that these products will have the same rules as those used by Centrelink. This means that all income streams that commence after 19 September 2007 will be counted as assets. From this date the only asset that will have any concessions will be the family home.
Fifty percent of any assets will be exempt from the assets test if they are used to buy income streams which are commenced between now and 20 September 2007 and that have the right features (for example access to lump sums withdrawals is not allowed, income payments have to be paid for life or a defined term). Also some of the income paid from these products will be excluded from the income test.
Future aged care residents only have a short period of time to buy the right sort of income stream to take advantage of these rules.
Clearly this is a complex area and assistance is often required to fully understand how the various rules will impact an individual’s personal circumstances.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.