Nick Bruining: Aged care expert reveals fees and charges that will be likely targets after task force report

The biggest changes to come out of the final report from the Aged Care Taskforce are those surrounding residential aged care and the amount you’ll be asked to chip in. The Federal Government has already stated that most arrangements for existing residents will stay in place. But for those not yet there, aged care expert Louise Biti from Aged Care Steps, has flagged some of the changes already announced in the task force report and likely to be implemented over the next few years. An aged care resident has to wrestle with two systems — Centrelink and aged care — and each has a different set of rules. Some of the processes are shared by both systems, but they are used for different purposes. The Centrelink system deals with income support payments including pensions. Continuing to receive payments from Centrelink means you would spend less of your savings on aged care fees. The aged care system deals with the accommodation and daily care costs of someone in residential aged care, with costs split into two parts — the accommodation component and the daily care component. The accommodation is typically funded through the payment of a Refundable Accommodation Deposit. If paid in full, the amount usually comes back when the resident exits the home. The RAD is, in effect, an interest-free loan to the provider. “The task force flagged this system as an issue because while it provides capital for providers, there’s no ongoing income,” Ms Biti said. “It’s proposed that by 2035, ‘buying’ a room through a RAD will disappear and we’ll all be ‘renting’ a room though regular contributions.” That amount would be means-tested to ensure those without the financial means to pay will still be looked after. The task force report suggests that an interim arrangement should include some of the RAD money being deducted by the provider along the way, meaning the lump sum returned would be less. The RAD amount is currently set by the facility and is usually linked to the quality and amenities available. It is typically the default maximum of $550,000 and this usually gets you a room with an ensuite. A payment of $200,000 might get you a shared room and bathroom. Very swanky places can charge up to $2.2 million with special government approvals. The task force thinks the $550,000 figure is now too low. Ms Biti believes it could be lifted to $750,000 in the very near future. Not all providers would increase their room prices, but some will. If the RAD is not fully funded, the shortfall amount is used to determine a supplementary Daily Accommodation Payment, which is calculated by multiplying the shortfall amount by a government-set interest rate. Once established, the DAP interest rate is usually fixed. From April 1, the rate will be 8.34 per cent. Someone with an RAD shortfall of $100,000 would pay $100,000 times 8.34 per cent — or $8340 — a year. This is converted back to a DAP daily amount of $22.85. The resident, or family, can elect to pay this, or choose to have it slowly erode the RAD. Ideally and, if the cash-flow supports it, you would fully fund the RAD. You might find yourself in a position where you can continue to receive a full or part-pension because the money paid towards the RAD is exempt from Centrelink means testing. In some circumstances, the home can be exempt under the aged care system, but in most cases for singles under the Centrelink system, the house is exempt for two years. For the aged care system your other assets and a capped value of the house is used in the calculations of daily care fees. That capped house value is currently set at $201,231, no matter the real value of the house. That could be easily be lifted, meaning residents would be forced to pay more towards their daily aged care fees. Currently, the minimum daily care fee is 85 per cent of the full basic rate of single pension, or $867.44 a fortnight. That means a full aged pensioner might still have a bit left over each fortnight. But if you copped the full means-tested fee because of your wealth, this could be up to an additional $1281.13 a fortnight. Again, the life-time cap you pay on this additional amount is currently $79,942.44 which, once set, stays for life. Once you hit this amount, you don’t pay any more means-tested amounts. The life-time cap could be another area targeted in the future. For both the Centrelink and aged care systems, the full sale value of your home can be assessable if the property is sold. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association