Why aged care deserves to be part of your retirement plan

Smaller families, children living and working away, more women continuously in the workforce and changing attitudes mean a growing reliance on formal care arrangements.

The government’s latest data shows more than 1.3 million people access or use some form of subsidised aged care either at home or in a residential care facility.

By 2050, it is predicted that this number will increase to around 3.5 million Australians accessing aged care services every year.

How will I pay for care?

Many of us will never have to move from our own home into residential care, but this is where future planning can go a long way. Ask yourself whether you would or could rely on family, on government-subsidised services or pay privately using existing resources.

If you would choose to pay for aged care then the question becomes, where would the money come from?

Superannuation and cash savings are generally the two obvious sources of capital.

But if the focus for these resources has been to fund a comfortable retirement, will there be enough in the kitty to cover your care needs as well?

Accessing equity in the family home

The family home may also become an important consideration in the funding of future care needs.

Decisions may need to be made around accessing the equity in the home – such as through the government-run Home Equity Access Scheme or a commercial reverse mortgage – to fund care in the home. Or you may plan to sell your home to pay for necessary accommodation or care costs in residential care.

The current expectation is that the government will continue to (heavily) subsidise people’s care costs.

Under the current system, the government does pay all or some of the bill for a large portion of home and residential care recipients – full pensioners are covered and part pensioners make a small contribution. But those with the means to pay are asked to do so. Caps exist for the care costs associated with both government subsidised home care packages and government subsidised residential care.

Home care costs

There are two categories of government subsidised home care services:

• Commonwealth Home Support Programs provide basic home services, such as cleaning or transport on an ad-hoc basis at highly subsidised rates.
• Home Care Packages provide a coordinated package of services tailored to meet a person’s care needs. There are four levels of home care packages which provide a total annual budget of between $14,366 for a level one and $64,167 for a level four (includes the government subsidy and the client contribution, which is charged as a basic daily fee).

The funds provide a budget to an individual to pay for services for their care. The individual chooses an accredited provider to manage the funds and deliver the services they require.

Depending on the individual’s income, they may be asked to contribute a maximum income tested fee of $13,087 a year for the care they receive. Everyone is asked to pay a daily basic fee based on the package level of between $11.22 and $12.53, although not many providers collect this fee.

The package for the highest level of care may deliver about 14 hours a week of care.

It can be difficult for someone who lives on their own with high care needs to manage on a package without further help, which may mean topping up the package with private funds. As a guide, the current rate for privately funded home care services through an accredited provider starts at about $65 an hour (more on weekends).

Residential care costs

There are four potential costs associated with residential aged care:

• The accommodation costs
• A basic care cost
• A means-tested care cost
• Extra or additional services

The accommodation cost is known as the Refundable Accommodation Deposit (RAD) which is a market price set by a facility. This ranges from about $350,000 to $1 million depending on the age and location of the facility.

The RAD can be paid in full or in part, but any unpaid portion is charged as a Daily Accommodation Payment (DAP), which is effectively a daily interest rate set by the government. The current rate is 8.15% a day.

How you meet the RAD or DAP payments will depend on a number of factors including your existing income and assets; whether you have a surviving spouse or partner or dependent child who will be living in your home, and estate planning considerations.

If you do move into care, then you may have to decide what to do with a former home; whether to sell or keep the property. The decision will depend on factors including personal preferences, estate planning and the financial impact.

Care fees

In addition to the cost of accommodation, there are care fees.

Everyone pays a basic daily care fee. This is set at 85% of the Age Pension and is currently $60.86 per day.

If you have financial means, you will be asked to make a further contribution to your care. This means-tested care fee is based on your income and assets and is capped at $32,718 per year.

In calculating the means-tested care fee, a person’s home will be exempt if a spouse is living in it. If no one is living in it, then only $197,735 of the value of the home is included in the calculation.

Both the income-tested fee for home care and the income and asset tested fee for residential care are capped at $78,524 over a lifetime.

Plan to avoid pressure

Conversations with family and loved ones around different care options and how they should be paid are often difficult.

The worst time to have them is under pressure, for example, beside a hospital bed.

It’s inevitable that creating a future that will meet our needs and keep us safe and comfortable as we age will involve a greater focus on the actual delivery of services and how we will pay for it. One thing is certain – the preferred outcomes will always be better with some planning.

It is strongly recommended that the person needing care and their family seek independent financial advice from someone who specialises in aged care.

Bina Brown is a journalist and director of aged care solutions company Third Age Matters.