Nick Bruining: Your very uncomplicated guide to new complex aged care fees under aged-care reforms

With delayed aged-care reforms now due to kick in at the end of October, many seniors with modest amounts in savings are understandably frightened.

The new increased fees for many seem out of reach.

Instead of residential aged care, many wonder if their final days might be spent at home, battling through the complex home-care system.

But Brenda Will, an independent specialist aged care financial planner, said those worried about the upcoming changes should not stress.

“That’s not how the system operates and every senior Australian can be reasonably assured that their final days can be spent in a safe, comfortable environment,” Ms Will said.

The aged care system differentiates between those who have the means to either pay for or contribute towards their care, in much the same way the welfare system locks out the wealthy from receiving an age pension.

And, just like Centrelink, your personal desire to leave a fortune to your kids is fine — just don’t expect taxpayers to foot the bill for you.

“There are two lump-sum options to cover the accommodation costs — the refundable accommodation deposit (or RAD) and the refundable accommodation contribution (or RAC),” Ms Will said.

The RAD is a lump-sum amount payable for accommodation that’s set by the aged care facility and it varies depending on the facility and type of room. In WA, it can be anywhere from $250,000 to $2.5 million.

A typical RAD for a decent room with an ensuite in Perth currently costs about $600,000. For $250,000, that might buy you a shared room and bathroom.

You can choose to pay the full amount or a daily payment based on the portion of the RAD you didn’t pay.

For those without the financial means to fund an RAD, the alternate system still requires you to contribute an amount of money per day towards accommodation. You can’t select the system applicable to you because it is based on your financial resources as assessed by Services Australia.

“You can opt to convert that daily accommodation contribution to a one-off lump sum amount, the RAC,” Ms Will said.

The aged care facility decides what sort of accommodation they will make available to RAC-type customers and almost all facilities must offer a certain minimum percentage of low-means beds to low-means residents.

“Someone with minimal income and with assets under $63,000 won’t be asked to contribute anything to the cost of their accommodation in aged care,” Ms Will said.

A low-means resident is an individual whose means-tested care fees amount is less than the maximum accommodation government supplement, currently $70.94 a day.

The calculation of the means-tested care fees amount is extraordinarily complicated and takes into consideration all of the income and assets of an individual, having regard to a partner or spouse.

For example, if the partner or another “protected person” is still living at home, the value of the home is completely disregarded when calculating the fees amount.

If you’re single, or become single, the home is generally no longer exempt unless another qualifying “protected person” lives there.

“In a practical sense, you might have one member of a couple who qualifies under the RAC system and when it’s time for the other partner to move into care, the means testing of the home will capture the partner moving into care under the RAD system,” Ms Will said.

The bottom line is that assuming you have no other income and your individual assessable assets are under $210,555, you will probably be able to access the RAC system. That means for a home-owning couple, with one person moving into care, total assets could be two times $210,555 — or $421,110 — plus the value of the family home, and one member might still be regarded as “low means”.

The other complicating factor is that once the RAD is set, that’s it — unless you decide to change facilities. If you’re there under an RAC arrangement, the numbers can change depending on your financial circumstances.

“It can be a nightmare to navigate,” Ms Will said.

“Let’s say the proceeds of a house sale eventually come into play. The benefits of remaining under the RAC scenario could change. It might be cheaper moving into a RAD arrangement.”

If you need help beyond what’s published on the myagedcare.gov.au website, financial planners with specialist aged care knowledge can be an invaluable resource. Centrelink’s free financial information service officers can also assist if you’re stuck.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association