Complex income & assets tests at risk of impeding care for aged parents

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Complex aged care rules putting financial strain on families: Centric Wealth.

Complex aged care rules putting financial strain on families: Centric Wealth.

Leading wealth management firm, Centric Wealth, today said that the current cost of aged care services, combined with complex carer and pension entitlements rules, means an increasing number of families are unable to pay for the care services their elderly relatives need.

“Over the past 100 years, life expectancy levels for 65 year old men have increased from 11 to 21 years,” said Centric Wealth Adviser, Glen Stander. “For women aged 65, life expectancy levels have increased from 10 to 22 years.

“Because we are all living longer, the number of people receiving a full or part aged pension has increased to around 75% of the population aged 65 and over. For those aged 80 and over, around 80% are reliant on a full or part aged pension.

Mr Stander said currently the aged pension is equivalent to around 30% of an average male wage and that it’s unlikely to be enough to fund residential or in-home care services for people aged 65 or over, particularly when these services need to be provided for 20 years or longer.

“That is why an increasing number of people are seeking professional advice as to how they can structure their finances to ensure they can fund the long-term care of their elderly relatives without negatively impacting their own finances or quality of life.”

As of 30 June 2011, there were approximately 169,000 people living in residential aged care in Australia, the majority of which are on a permanent basis. About three quarters of these people are aged 80 or over, with around 57% aged 85 and over.

“The current rules for the provision and cost of residential or in-home care services are extremely complex,” said Mr Stander. “If they are not properly understood, the financial position of both those being cared for and their families can be significantly impacted.”

According to Centric Wealth, all residents in care need to pay a basic daily fee as a contribution towards their accommodation and living costs. The Government has set a maximum basic daily fee of $ 45.63 per day, which is indexed on 20 March and 20 September each year in line with movements in the aged pension.

“In addition, everyone who moves into an aged care home generally has their assets and income tested by Centrelink so the Department of Health and Ageing can work out what amount of fees that person should pay.”

The income tested fee is another ongoing daily fee which is only paid by aged care residents whose total assessable income exceeds the income free levels which are currently $936.40 per fortnight for a single person and $ 918.40 per fortnight for each member of a couple. The maximum income tested fee you may be asked to pay is currently $72.48 per day.

Generally, there are two types of residential aged care, low level care (ie. hostels) and high level care (nursing homes), with the main difference being the level of care that is provided.

“If a person enters a low level care facility or a residential aged care home that offers extra services and their assets are above a certain amount, they may also have to pay an accommodation bond, the amount of which is not set but subject to negotiation between the person going into aged care and the service provider,” said Mr Stander.

“Some of these accommodation bonds can be more than $500,000 depending on the particular aged care facilityHowever, it is important to note that if the person entering the aged care facility has assets of less than $44,000, they cannot be asked to pay an accommodation bond.”

“Because of the complexity of the aged care sector, not just in terms of the cost of residential care but also carer and pension entitlements, effective financial planning is key to achieving the best outcomes for everyone involved,’’ said Mr Stander.

Further, new aged care reforms were recently legislated and will be effective from 1 July 2014. The changes will be phased in over a number of years, which could add more complexity and further decision making for those thinking about aged care.

“From a financial perspective, an increasing number of our clients’ are concerned about what type of investment strategies they need to put in place to adequately fund the aged care requirements of either themselves or their parents. For example, one of the most common questions we get asked is whether an account based pension or annuity is more beneficial in terms of being able to maximise Centrelink or DVA benefits and whether this pension or annuity income may affect their aged care fees.

“Also, to identify and implement the right aged care, sufficient time needs to be spent exploring all available options as well as appropriate financial management and investment strategies,” said Mr Stander. “Effective financial planning helps take some of the emotion out of the decision making process as the key points are agreed well in advance.

“Often client’s do not want to ask their parents if their Last Will and Testament is up to date or suggest they put a Power of Attorney agreement in place. Additionally, many are concerned they may not fully understand their duties and obligations if they are appointed executor of their parents’ estate.

“We work with our clients to ensure all of their questions are answered and appropriate plans are put in place well in advance of them having to make what are difficult, complex and emotional decisions.  This planning helps give our clients, and those they are caring for, greater peace of mind.”

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