Australia’s aged care system has never been simple, but the November reforms around accommodation payments are creating an expensive new problem for residents entering care.
The government’s My Aged Care website says, “you can choose to pay a lump sum any time after you enter care”. In reality, many residents are discovering that this choice has effectively disappeared.
Behind the scenes, the department is advising aged care providers not to accept Refundable Accommodation Deposits (RADs) until a resident’s means assessment outcome has been formally notified.
The concern appears to be the administrative complexity created by the new accommodation payment rules – particularly the calculation of retention amounts and the possibility that refunds may be required once a means assessment is complete.
The result is that aged care homes have become the ham in the sandwich, caught between residents who want to pay a RAD and a government trying to reduce the administrative burden its own rules have created.
While it might sound like a small technical issue, it is costing some residents thousands of dollars.
There are three ways to pay for aged care accommodation: paying a lump sum RAD, paying a Daily Accommodation Payment (DAP), or using a combination of the two. Many residents prefer to pay at least part of the RAD because it reduces their daily accommodation costs and can improve their age pension position.
The daily payment is calculated on any unpaid RAD at a government-set interest rate, currently 7.65 per cent and indexed twice a year. On a $750,000 RAD, that equates to about $157 per day – or $57,375 per year – in interest payments alone, on top of the basic daily fee and means-tested fees.
The financial impact doesn’t stop there. Once paid, a RAD is an exempt asset for pension means testing. By not allowing the resident to pay a RAD their savings remain assessable potentially reducing their pension while they wait for the means assessment outcome.
The pressure is being felt by Services Australia, the agency responsible for conducting the means testing, which has indicated that between December and February, the average time for an assessment to be completed was 29 days.
Putting the cost of the delay into an everyday example. Jack is a part pensioner who has moved into aged care with an accommodation cost by RAD of $750,000. Jack would like to use $350,000 from his savings to pay towards his RAD.
If he can’t, his Daily Accommodation Payment will be $73/day higher and his pension payments will $75/day ($1050 per fortnight) less. If it takes 29 days for Jack’s means assessment to be notified it will cost Jack $4292.
Aged care residents are paying the price for the complexity of a system created by government – one that promises choice but removes it at the very moment families are trying to make one of the biggest financial decisions of later life.
Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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Rachel Lane is author of the best-selling book Aged Care, Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker.
