Residential aged care
What SMSF trustees should know around retirement.
When it comes to residential care there is no longer a differentiation between low level care and high level care. In addition to dropping this differentiation people who moved into an aged care facility from July 1, 2014 can pay a range of fees. These include:
- a basic fee that will be paid by all people who receive residential care,
- a means tested care fee that is an extra contribution to the cost of care that is based on the residents income and assets,
- an accommodation payment that is also dependant on a person or couple's assets that is paid either as a lump sum refundable deposit, a daily accommodation payment, or a combination of both,
- fees for extra or additional optional services such as hairdressing or cable TV and other services that are in addition to basic services provided.
The basic daily fee
Everyone entering an age care facility must pay a basic daily fee related to the care. The maximum amount chargeable is set by the government and currently stands at $47.49 for residential aged care.
The basic daily care fee is set at 85% of the single person rate for the basic age pension. As pensions increase twice each year in March and September the basic daily fee also increases.
The means tested daily care fee
There are maximum limits placed on what is payable under the means tested daily care fee. The maximum that a person can be asked to pay in means tested fees is $25,529 a year, or $61,269 in their lifetime. Both of these maximum amounts will increase in line with indexation each year.
The daily means tested care fee payable is made up of an income tested amount and an asset tested amount.
The income tested fee is calculated by deducting an income free limit from a person's assessable income. The first income threshold is currently $25,316.20 for a single person, $19,653.40 each for a couple living together, and $24,848.20 each for a couple separated due to illness. The income tested fee payable is 50% of the excess income over the income free limit divided by 364.
The assets tested fee is payable where a person's assets exceed $46,000. The calculation of this fee makes the formula for Einstein's theory of relativity look simple. On the Department of Social Services website the explanation of how this fee is calculated is virtually unintelligible. In addition to the $46,000 asset free area there is a first asset threshold of $157,051.20 and a second asset threshold of $379,153.60, and a maximum accommodation supplement of $53.39 per day.
The means tested fee payable is calculated by the Department of Human Services. There is a calculator on the Department of Human Services website the provides an estimate of what the daily care fee will be.
The annual and lifetime caps
To ensure that residents of age care facilities do not pay too much in their means tested fees an annual limit and a lifetime limit have been put in place. The annual limit is $25,529. Once a resident has reached this limit of the annual means tested fees no more fees will be payable until the anniversary date of when they entered the aged facility. The lifetime limit on means tested fees is $61,269. Once a resident has reached this lifetime limit there are no further means tested fees payable by them.
Where residents had been paying Home Care Package fees these are also counted towards the annual and the lifetime limit for means tested fees.
The annual and the lifetime means tested fees limit will increase in line with indexation.
Accommodation deposit payment
Under the old system a Refundable Accommodation Bond was payable and residents were able to negotiate the amount of the deposit. The refundable bond has been replaced by an accommodation payment, and as was the case under the old system the amount of refundable deposit can be negotiated with the owners of the aged care facility.
The current legislation includes a maximum refundable accommodation deposit that can be charged by an approved provider. This maximim deposit is $550,000. Accommodation providers can apply to the aged care pricing Commissioner to increase this. Under the system of RADs a retiree can still be left with as little as $46,000 after paying the deposit.
The amount of accommodation deposit payable will be based on a resident's income and assets and will be assessed by the Department of Human Services for Department of Veterans Affairs.
The accommodation deposit can be paid either as a lump sum refundable accommodation deposit, a rental type payment called a daily accommodation payment, or a combination of both.
The secret of keeping an RAD as low as possible, and therefore a retiree retaining more of their retirement assets, is to not limit the choice to just one residential care facility but shop around. In addition there are consultants that specialise in this area the can make sure a retiree's needs are matched to the retirement facility and their RAD is reduced as much is possible.
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