Nick Bruining Q+A: Aged care costs, pensions and the family home. It’s complicated so you need to get it right

Question

In last week’s Your Money, you explained the details of accommodation costs for single pensioners.

My parents are a couple in their early 80s and my dad has dementia. He presently receives a Level 4 home care package but I can see a time where Mum will not be able to look after him.

Apart from their home — which is probably worth over $1 million, they have about $600,000 in super, savings and shares.

What will happen if Dad moves into aged care, and will Mum have to sell the house?

Answer

You parents’ position is very common and, fortunately, the very complicated system accommodates these variation — but with the underlying principle that if you are in a position to either fully or partially fund your own retirement and aged care, you are compelled to do so through the application of means testing.

Given their asset position, they are only receiving a part-pension at present. While they should seek their own financial advice from a specialist aged care financial planner, the critical issue will be Mum’s cash-flow requirements.

If they decide to liquidate the investments to meet the costs of the Refundable Accommodation Deposit and — assuming that exceeds about $180,000 — Mum will only have the leftover amount to generate additional income to top up her pension.

As they will be separated by illness, she will probably be receiving the full rate of single pension, currently $1096.70 a fortnight.

The daily care fee is a separate calculation. The basic cost is set to 85 per cent of the single rate of basic pension. The facility you choose may also charge an “extra services fee”. How much Dad has to pay will be based on the financial assets they currently have.

Fortunately, because Mum is still at home and they have been living together for many years, the home value, for now, is excluded in any calculations. While the RAD amount is exempt from Centrelink calculations, it is included in Dad’s daily care fee calculations.

Even if the RAD is $550,000 the estimated daily care fee Dad will have to pay is about $64 a day. Given that he will be receiving $1096.70 a fortnight from Centrelink, that works out to be $78 a day.

The situation will change significantly if Mum moves into aged care. In this case, the home will remain exempt for Centrelink purposes for two years after the move but a capped amount will be included in her daily care fee calculations.

Instead of paying the RAD, a better scenario might involve renting the property out and the net rent received might cover the costs of a Daily Accommodation Payment.

Again, seek specialist advice before moving.

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