Nick Bruining: The ‘sneaky’ change slugging pensioners moving to aged care with extra daily accommodation fees

What’s been described as a “sneaky” addition to new aged-care legislation could see some seniors about to move into facilities lose their age pension and cost them thousands of dollars in daily fees.

The unannounced change to Section 294 of the new laws that took effect last November has caught aged care facilities and financial experts by surprise.

In simple terms, it prohibits an aged care facility from accepting a refundable accommodation deposit until the resident can furnish a means test assessment, issued by Services Australia.

Until that assessment arrives, the person who takes up their place must make the daily accommodation payment, which in many cases could be more than $157 a day.

If a person pays the full RAD on entry, no further accommodation payments apply — just daily care fees.

If the facility has not received the RAD or only received part of the lump-sum amount, it can legally charge the outstanding balance multiplied by the current interest rate of 7.96 per cent a year.

That annual figure is divided by 365 to give the DAP. Facilities can charge up to $750,000 for a bed without additional government approvals. In some cases with high-end aged care homes, the RAD can exceed $2 million.

Financial planner and aged care specialist Brenda Will said the wait times to receive a means test assessment varied.

“For those on an existing payment like an aged pension, it can be faster because they already have all the information. But for someone that’s a self-funded retiree, the delay can be considerable,” Ms Will said.

In one case, Ms Will said the person had already been waiting six weeks.

“And if you have a family trust or a private company, it is regarded as a ‘complex’ assessment, and these can take months to process,” she said.

Many families are in a position where they have been able to plan their move into aged care, and part of that process may involve the sale of the family home. In this case, the move into aged care might coincide with the settlement of the property.

Under this change, an aged pensioner could not only cop the DAP payment, but could lose their pension for the time they are waiting.

“A person on a full pension that needs, say, $650,000 for the RAD and sells their family home for $800,000 could arrange things so that the settlement and the move to aged care occurs within the 14-day Centrelink notification period,” Ms Will said.

Money paid towards an RAD is exempt from means testing for age pension purposes.

“If the money needs to be parked until the Services Australia assessment arrives, that becomes an assessable asset. Their pension will drop more than half to $540 a fortnight,” Ms Will said.

The experience being seen in the real world seems to differ dramatically from Services Australia data.

Services Australia general manager Hank Jongen said in February, the median time to process a means test assessment was three days.

“Between December and February, the median time to process a means assessment for residential care was eight days, and the average was 29 days,” Mr Jongen said, confirming complex assessments “take longer”.

In simple terms, a person liable for a full $750,000 RAD waiting the average 29 days would be liable for DAP payments totalling $4558.

“And without this change, the person could have just paid the RAD on entry and not paid a cent extra,” Ms Will said.

“The amount paid as a DAP does not come off the RAD amount. You’ll still have to pay the full RAD, plus this extra amount.”

Ms Will recommends lodging a request for the assessment well ahead of time, and updating the details if they change.

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