When contemplating how to fund care, we often receive questions about lowering fees to make care more affordable or increasing the Age Pension to assist with aged care expenses. There are several avenues to achieve these goals while being mindful to avoid costly mistakes in fee reduction efforts.
For couples already receiving an Age Pension, when one or both members move into permanent care, they transition from a couple’s pension to a couple separated due to ill-health. This change raises the maximum pension payment from $827 per fortnight each to $1,096.70 per fortnight each.
For couples not yet receiving an Age Pension due to exceeding allowable income or asset thresholds, moving to the “separated due to ill-health” criteria may work in their favour by way of higher allowable limits.
A significant cost in aged care is the Daily Accommodation Deposit (DAP), which represents the interest paid toward your Refundable Accommodation Deposit (RAD) if it hasn’t been paid in full. Depending on your financial position, you might have the ability to make a payment toward your RAD, thereby decreasing or ceasing the interest payable on your room and RAD. This move can be financially advantageous, particularly if your assets are not earning more than the applicable interest rate (currently at 8.15% per annum). Why earn 3-4% in a bank when you’re paying out around 8% in interest?
Another benefit of contributing toward your RAD, if feasible, is that it doesn’t count towards your Age Pension means assessment. This may render you eligible for an Age Pension if you otherwise would not have been, or for existing recipients, you may be eligible for higher Age Pension payments in the future.
Another potential fee is the Means Tested Fee, which depends on your assessable income and assets. Reducing your assessable assets will again assist in lowering the means-tested fee.
We believe in prudent financial management and don’t encourage spending money solely to increase pension benefits or marginally reduce fees. In most cases, having those funds available for use can provide a more substantial overall benefit.
However, if you’re looking to reduce fees or increase your pension, consider the following strategies within Centrelink’s rules:
- Prepaid funerals, which are exempt assets up to $15,000 for Centrelink age pension and aged care calculations. This is worth considering if you have the available funds while still meeting your living expenses.
- Opting for a higher-priced RAD, which can exempt more assets from the Age Pension means tests. Ensure you maintain adequate funds for immediate access outside of this investment.
- Gifting is allowed by Centrelink, with limits of up to $10,000 per financial year and $30,000 over five financial years. If staying within these limits, you can reduce your assets. However, a Power of Attorney may not be able to complete this on behalf of the person giving the gift, and careful consideration should be given to the desired outcome, such as increasing pension benefits or having access to the $10,000 in funds for immediate use.
- Ensuring Centrelink have reasonable valuation of cars and household contents. The contents’ value doesn’t need to match the insurance value; you can use a ‘fire sale’ price. Imagine if you had to sell everything at a garage sale over the weekend, what would you realistically get for it?
- Annuities can be explored if you still have substantial funds available after paying your RAD. Specialised annuities can reduce your assessable assets, potentially lowering Means Tested Fees or increasing Age Pension entitlements.
This article only scratches the surface of the strategies available to improve your financial position in aged care. Consulting with a financial adviser can provide the guidance needed to structure your financial affairs for reduced potential fees, enhanced cash flow, and wealth preservation.
If you would like to further educate yourself on the world of Aged Care, please read our series “Steps of Entering Permanent Aged Care”.