Aged Care Changes: Self-funded retirees to pay more and help build more
The Federal Government's new Aged Care Bill aims to fix a broken system. If you're a self-funded retiree, you'll be subsidising the changes.
Aged Care Accommodation Reform: The story you are not seeing in the news
Residential aged care is currently not profitable, hindering the development of new aged care beds and putting additional pressure on the entire system.
Providers need to generate more income from building these beds, and the Government is proposing changes to incentivise them.
They plan to do this by reworking the current Refundable Accommodation Payments (RADs) system to make it more financially rewarding for providers.
What needs to be addressed in the news is who will ultimately pay for this.
Self-funded retirees are part of the plan
Not all residents contribute to their accommodation costs by paying a RAD.
However, self-funded retirees pay RADs, putting them at the centre of this plan to encourage the construction of more aged care beds.
How it works
Under the new system, if a resident pays a $750k Refundable Accommodation Deposit (RAD), the provider will keep 2% per year, debited monthly, for up to 5 years.
In this example, that's $15,000 annually and up to $75,000 over five years.
There's more: if you don't have the money to pay the RAD, you'll pay via an interest rate set by the Government (currently 8.36%), which is indexed twice a year.
It's like taking out an interest-only loan on a home, except the "loan" is adjusted twice a year to reflect an increase in the value of your home. This will take some getting used to.
Capital city residents to be hit hardest.
In urban areas, Refundable Accommodation Deposits can easily reach into the millions. For every $1m in a RAD, $20k is retained per year.
Is this an inheritance tax? The money may not be flowing to the Government, but it works in a similar way: Government rules and self-funded retirees pay up.
Please contact us if you have more questions about how Refundable Accommodation Deposits work.
New types of fees make it even more complex
The "fee stack" now looks like this:
Basic Daily Fee ($22.6k per year)
Hoteling Supplement (up to $4.6k per year)
Non-clinical Care Contribution (up to $37k per year)
Plus, the potential for a Higher Everyday Living Fee will consolidate the current Extra Service and Additional Service Fees.
This stack has a higher maximum fee collection than the current setup. Financial means testing will lead to self-funded retirees paying much more.
It is even more difficult to work out with lifetime caps and indexing
With new lifetime caps on Non-clinical Care Contributions and the impact of indexed RAD payments, a thorough financial analysis will be essential to understand the impact of aged care costs on residents' cash flows, entitlements, and estates over a period of years.
Careful and skilled planning will be required to ensure that care and accommodation are paid for in the best way possible, to optimise entitlements, and, at least, to be viable.
For many, there will be two concurrent systems to compare due to the "no worse off" principle.
We're already on top of these changes.
We have until June 30 next year to prepare and guide our clients in making the best decisions. Those on the margins of timing will need advice on comparing options and putting themselves into the best possible financial positions.
Well-considered plans can make all the difference when changes like this happen. Having the support of a team that specialises in helping retirees will give you the peace of mind you need to get on with life.