Oct 24, 2017

The Age of Complexity: Challenges in Finding the Right Care

Slowly, some might say stealthily, the government is putting a greater onus on Australia’s elderly – and their families – to stump up a greater amount for their aged-care fees. On January 1 this year, the government introduced rules that made it harder for people who are entering residential aged care to collect a pension. More than 100,000 Australians lost their pensions and more than 200,000 had their pension reduced as a result of the new rules. Now more people will have to sell their family homes to fund their aged-care requirements.

Before January 1, any person paying part of their refundable accommodation deposit (RAD, formerly known as the bond) by way of a daily payment had their family home exempt from the assets test,and any rental income from the family home was exempt from the income test. The assets test and income test determine the size of a person’s pension so having exempt assets and income entitles you to a higher payment. For those entering residential aged care after the start of this year, the family home became exempt from the assets test for two years only, and thereafter fully assessable at its market value. Also, any rental income from the family home became immediately assessable under the income test.

Finally, the asset test thresholds were increased for all pensioners – singles, couples, homeowners and non-homeowners. For a single homeowner, it was increased from $209,000 to $250,000. The taper rate, which determines how much of a pension is lost if assessable assets are above the threshold, was increased from $1.50 per $1000 above that threshold to $3 per $1000, the rate that applied before the 2006 budget.

Consider the case of a pensioner entering residential aged care with a home worth $400,000, a bank account with $20,000 and rental income from the home totalling $12,000. Until the end of 2016 the pensioner would have continued to receive a full age pension ($888.30 a fortnight, or $23,095.80 a year) indefinitely. Under the new rules, the age pension will be reduced by $155.49 a fortnight (to $732.81 a fortnight, or $19,053 a year) for the first two years, and then the pension will disappear totally after two years.

The new rules are part of a long-term plan by the federal government to make people more responsible for the overall cost of their aged care, which in turn will reduce the amount of the assets they can leave to their children.

The cost to the federal government to fund aged care is increasing by roughly $1 billion a year. According to the recent budget papers, growth in future years is “partially moderated” by the changes on January 1, and the increase in the age pension age.

One of the government’s new initiatives in the budget was the introduction of an additional non-concessional superannuation contribution of up to $300,000 from the proceeds of the sale of the family home to encourage older couples to downsize. These incentives are expected to cost the government $30 million over the next four years and offer some positive social benefits, including making large homes available to younger generations. However, there is an unquantified payback to the government fur- ther down the track. The funds freed up by downsizing will find their way into investments that are assessable for the pension. So, in the future, many of these people will no longer qualify for a full or part pension.

As more and more Australians are living longer, aged care is cementing itself as a growth industry. The number of people in aged care is expected to triple over the next 35 years, from 225,000 today to 700,000 in 2050. Unfortunately, the industry is becoming more complex – and the rules in their current form test the most financially literate of people. Clients – usually adult children who are time poor and under duress as a parent lies in hos- pital – have to find a suitable aged-care facility and then negotiate the RAD with an aged-care provider, as well as charges including daily fees, extra-services fees and means-tested fees.

By far the largest cost of aged care is the RAD. This can be as high as $2 million to secure a room in an aged- care facility. Many facilities prefer the bond to be paid as a lump sum upfront, but it is possible to choose to pay interest payments only, or pay with a combination of lump sum and interest payments.

In many cases, in order to determine the means-tested fee a Centrelink form must be downloaded and completed. Its size and complexity – 28 pages and 145 questions – tests the most patient and numerate of people. In recent months, we have given advice to three tax partners from big accounting firms, all of whom found this form – and other parts of the aged-care accommodation process – too complicated to deal with. They were also concerned that there were aspects of the process that they were unaware of and that could cost their families a significant amount without them even knowing.

The government is currently conducting a major review into aged care, with a report expected to be delivered in August 2017.


  1. It’s best not to be rushed when considering aged care. Start preparing well in advance.
  2. The location of an aged-care facility is important. The closer it is to family members the better.
  3. Don’t sign anything you don’t understand.
  4. If you have two parents alive, they are likely to age at different speeds. This will add to the complexity when they enter aged care.
  5. You don’t need to tell an aged-care facility about your financial situation.
  6. Often it is not necessary to complete or submit the Centrelink form.
  7. If you can, try before you buy. Many aged-care facilities offer respite options.
  8. Don’t be afraid to negotiate on the RAD.
  9. Consider different strategies for handling monthly cash flow.
  10. Aged care is complex and no one can know it all – get advice.

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