Aligning age pension and aged care means testing

While we covered off the topic of Asset test changes and age pension in November 2016, I believe it is important to again highlight some of the effects of the changes now that they are actually in force.

It is highly likely that individuals moving into aged care from 1 January 2017 may face increased cash flow pressure due to altered treatment of the former home. (See Table 1 below).

Ref: Challenger Tech, November 2016. Aligning Age Pension and aged care means testing. 1 Rates and thresholds as at 20 September 2016. 2 Rates and thresholds as at 1 January 2017. 3 Assumes interest of 2.5% p.a. 4 Aged care rates and thresholds as at 20 September 2016. 5 Maximum permissible interest rate of 5.76%. 6 Estimated tax incorporating SAPTO and net medical tax offset.

Ref: Challenger Tech, November 2016. Aligning Age Pension and aged care means testing.

1 Rates and thresholds as at 20 September 2016.
2 Rates and thresholds as at 1 January 2017.
3 Assumes interest of 2.5% p.a.
4 Aged care rates and thresholds as at 20 September 2016.
5 Maximum permissible interest rate of 5.76%.
6 Estimated tax incorporating SAPTO and net medical tax offset.

Removal of the rental income exemption

Prior to 1 January, 2017, rental income from the former home was exempt from the Age Pension means test if:

• the person entered care before 1 January 2017, and

• some or all of their accommodation costs were paid as periodic payments (this includes: daily accommodation payments ‘DAP’ or daily accommodation contributions ‘DAC’)

In the first of two changes to apply from 1 January 2017, the exemption described above is no longer applicable for new residents entering care on or after that date, regardless of how the new resident chooses to pay their accommodation costs

Now let’s look at the affects of this change on residents through a case study

Using Table 1 figures above, Barbara, age 84, is a widow and lives on her own. So far, she has been able to get by with the support of home care services and weekend visits from her two adult children. Due to increasing daily care needs, she has been approved for residential aged care. She has found a place at an aged care facility requiring an accommodation payment (AP) of $400,000. Her only assets are the family home valued at $850,000, personal effects of $15,000 and a bank account of $80,000. She receives the full Age Pension of $22,805 per annum. Barbara moves into the Aged Care Facility and rents the former home for $700 per week. The AP is paid as a DAP.

Some food for thought...

My view on this topic is that changes were inevitable, however this does not suggest that renting the former home is no longer a sound strategy. Each individual is assessed on their specific needs and requirements, so it’s a good idea to consult an accredited Aged Care Specialist when preparing for entry to an Aged Care Facility before making any financial decisions. 

Blog post written by Paul Geisel, Aged Care Specialist

For any queries regarding the above information or case study, contact Paul Geisel, Aged Care Specialist on 07 3721 4403 or paulg@financialadvicematters.com.au.

Paul Geisel

Aged Care Matters

Paul Geisel

Accredited Aged Care Specialist

Sub-Authorised Representative No 345693

Ph 07 3721 4403

E   paulg@financialadvicematters.com.au

Paul joined our team in 2010 with over 25 years experience in the Financial Services industry. Paul has been a Certified Financial Planner since 1995, and has the experience to deal with the ever changing landscape in our industry. Paul has a Diploma in Financial Planning, is an Accredited Aged Care Specialist and is a Commissioner of declarations.

Paul previously headed up a major Australian Bank Wealth Management Division for 10 years, and was also responsible for the setting up of a major Credit Union as a full Dealer Group having obtained an AFSL.

One of Paul's key professional achievements was being chosen as 1 of 100 Senior Managers worldwide whilst working at a major bank to complete an external Transformational Leadership Course.

Married for 40 years to his wife Peta, Paul is a proud dad to one daughter, and recently also became a grandad for the second time. He enjoys watching most sport at state or national level, having played A grade squash and rugby league, as well as being a keen water skier. Paul has a real passion for the country life and bushwalking, and was proud to have walked the Kokoda track in 2005.