Looks like RADS inflow going to increase significantly as result of change. DAPS down as a result. Interest free money.
Retirees in aged care should consider options ahead of assets test
- JOHN RAWLING
- The Australian
- 12:00AM November 15, 2016
- 1 Comment
Few people will be more nervous about the government’s planned changes to the age pension, due to come into effect on January 1, than retirees living in residential aged care, many of whom use their pension cheques to pay their accommodation fees.
Before Christmas, Centrelink will send out letters to about 700,000 Australian retirees outlining the new rules. A new assets test will reduce or eliminate pensions for many seniors with substantial investments.
Although it looks like 160,000 of Australia’s four million pensioners will receive a modest increase in their pensions, more than 300,000 face cuts, and nearly 90,000 pensioners will have their pension cancelled completely.
This is a big deal for people in residential aged care because about 90 per cent of them receive a full or part-age pension.
Regardless of when Centrelink sends out the letters, there will be very little time for people to assess their situation, take advice and implement a strategy before the new year begins.
For this vulnerable section of our population, it will cause significant worry and stress.
For residents who did the right thing and carefully planned what income they would need to pay the basic care fee for residential aged care — as well as the extra services fee, the means-tested fee and possibly a daily accommodation payment — the loss of the pension may make residential aged care too expensive for them. Some will doubtless have to seek alternative accommodation.
Some aged-care residents have invested their savings in term deposits of at least 12 months or more in order to get a modest return of perhaps 3 per cent. A loss or reduction of the pension may force them to redeem their term deposits early so that they can pay the monthly aged-care invoice.
They will probably be penalised by the banks for the early redemption.
So, what options do people have to try to improve their situation? Depending on their circumstances, here are several items that should be considered:
• Gifting assets to family or friends. This must be done within the financial constraints established by Centrelink. Pensioners can gift as much as they like, but can deduct only $10,000 a year, or $30,000 over any rolling five-year period.
• Funeral preparations. Regardless of their value these are not assessable by Centrelink, nor are funeral bonds and prepaid funeral expenses where they comply with Centrelink guidelines (a maximum of $12,000 is allowable).
• The refundable accommodation deposit (“the RAD”) for an aged-care bed is not an assessable asset for the age pension assets test. So, for aged-care residents who have not paid their RAD in full as a lump sum, they could consider paying more to the aged-care facility. In most cases, this would also reduce their means-tested care fee.
• Invest some funds in a financial product that may provide a better outcome. For example, some products are structured to have a lower and reducing assessable asset base under the asset test for the pension and the means-tested fee. The regular annuity paid may also be partially non-assessable for the income test.
• Estate planning. Many couples in aged care have a will that leaves all of their assets to their partner. For the surviving partner, this will result in their assessable assets increasingly dramatically overnight. The result could be the loss or reduction of the age pension and a big jump in the means-tested fee. Families should discuss the option of changing a will so that the surviving partner has sufficient funds to remain comfortable in aged care while the next generation may see some of their inheritance earlier than expected.
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