Navigating the aged care maze

The following article first appeared in the Australian Financial Review:

Deirdre Border knew it was time to talk to her 84-year-old mother, Margaret, about stepping up her care needs when she arrived to find the water to her home had been cut off. What Deirdre hadn’t realised was that Margaret had unpaid utility bills going back several months. The once busy accounts director was now living the life of a virtual hermit in one room of her substantial home in Melbourne’s eastern suburbs.

Deirdre’s concern prompted a conversation about the need to increase the level of home care and the possibility of going into residential care.

Margaret was initially appalled at the ­idea of going into a home but, after she was assessed and there was an independent voice presenting the scenarios, she resigned herself to at least look at her options. When she fell and injured herself and was no longer able to get home care, the move to residential care was inevitable.

Within days, the family had to find a bed in a facility they were happy with and a vacancy they could afford.

There were dozens of phone calls to ­Centrelink, potential homes and advisers. On the advice of Equity Trustees, which Deirdre engaged to help advise on finances, it was decided to keep the family home and use other assets (Margaret’s deceased husband’s superannuation) to pay for her move to the aged-care facility.

Like Deirdre’s situation, finding and ­funding the right level of home and residential care for older relatives is an increasingly pressing issue for Australian households.

Even with recent reforms and a focus on assisting the country’s ageing population, the aged care system is a minefield where the help of younger family members and professionals is highly sought.

“An emotional and stressful situation can be made easier with some prior planning – starting with a conversation about care when a parent or relative is fully cognisant,” says Denise Tomaras  aged care placement specialist with Equity Trustees.

“It is a hard conversation to have at any time but if residential care is something that is inevitable, it is better to have the discussion when someone fully understands. If they get to the stage of dementia, then paranoia sets in.”

The average cost of aged care accommodation is estimated at about $300,000 to $400,000, payable as a refundable accommodation deposit (replacing the old bond), a daily accommodation payment or a combination of both.

About 5 per cent of facilities charge $550,000-plus under ­special government approval. Someone without the means to pay for accommodation will get government assistance.

One big improvement since the introduction of the Living Longer, Living Better reforms is that all aged-care facilities are required to publish the cost of the accommodation on the Government’s My Aged Care website (, as well as whether they offer “supported” beds (that is, paid for by government).

A residential care fee estimator on can help work out potential care costs. But this is just the start of what can be a very stressful and emotional process for individuals and their families.

Equity Trustees aged care advice senior manager Anna Lawton says a shift in ­attitude to aged care means more people are starting to factor it into their plans earlier.

“Earlier generations saw it as ‘don’t you dare move me’. But the next generation has a growing awareness and acceptance that there is the potential for a move into care. So from a planning point of view, people need to be thinking about saving for that,” she adds.

Lawton says the move to a “user pays” ­system from July 1 this year means that people may have more choice as to where they go, but if they want to be near family and have all the bells and whistles, planning is needed. The best way to do this is – much like ­saving for an overseas trip – is to have capital saved for entry into aged care. Plan B is to ­discuss it with family ­members and consider all the options, including whether to sell the family home before it becomes a decision made under pressure in a short time frame.
Means-tested care

Where someone does own their own home, it is counted as an asset by the government in its calculation of the means-tested daily care fee but only up to the value of $155,823. Where a spouse remains in the home, it is not assessed.

As of July 1 this year, all refundable accommodation deposits (RADs) are ­published on, and on the facility’s website.

As the name suggests, this is a deposit and any balance is refunded when a person leaves the facility less any amounts that have been agreed will be deducted. (The reduced amount could be because of daily payments or extra care fees.)

The deposit can also be paid in periodic payments – called the daily accommodation payment (DAP), calculated by converting the refundable accommodation deposit into a daily charge using the maximum permissible interest rate at the time someone goes into care. The current rate is 6.63 per cent.

As well as the accommodation charge (which covers the cost of a bed only), there is also a basic daily fee (for costs such as meals, cleaning, laundry, heating and cooling), as well as a means-tested fee as an additional contribution towards the cost of care.

Everyone entering an aged-care facility can be asked to pay the basic daily fee, which for new residents is 85 per cent of the single person rate of the basic age pension (current rates put this at $47.15 a day).

The means-tested fee is calculated by the government based on your income and assets. A member of a couple being assessed would have half of the combined income and assets considered in determining the means-tested care fee, regardless of which partner earns the income or owns the asset.

Annual and lifetime caps apply to the means-tested care fee of $25,349 and $60,838 respectively. Some facilities offer extra services such as hairdressing or a as a glass of wine with meals, for which they will charge an additional fee. This can vary between $20 and $100 a day.

Just as the services may vary, so will the charges. But from July 1 this year, aged-care facilities with dedicated “extra service” places are required to publish their extra service fees on the My Aged Care website, their own website and in other relevant materials provided to prospective residents.

Ipac Financial Care adviser Paul ­Intagliata says six months into the reforms, there is still much confusion. Part of this stems from the requirement that everyone looking to enter aged care is presented with a ­Centrelink assets and income form, irrespective of whether they are on an age pension or self-funded. This assessment will tell the facility just how much the resident will need to contribute to the cost of care (with the ­government paying the rest). For residents of limited means this test may also help determine any government support.

Where someone doesn’t complete the form and the facility accepts them, the resident is liable for the full amount of the cost of care and accommodation (subject to the caps mentioned previously)

Later Life Advice founder Brendan Ryan says ignoring the government’s means ­testing will result in the resident paying the full cost of care, with daily amounts reaching up to $240 a day.

“The daily limit is the extent of the ­payments the government pays the ­provider, and it can be substantial,” Ryan says. “For example, if a resident has high-level requirements for care, the government’s payment to the aged-care facility for providing the care could be $208 per day. At this rate, the $25,349 cap would be reached in four months, requiring high payments in the early months and nothing later,” he says.

Ryan says based on the government’s assessment, a resident would need to have assets of $2.5 million (including the home) to be paying for the cost of care at this rate.

“If the resident had financial assets less than $2.5 million, the government would assess they should not have to contribute the full $208 in care fees per day and the overall cost of care would be more evenly spread over the whole year.”

Based on calculations using the government residential care fee estimator, Ryan says a resident with $1.2 million in cash would be limited to paying $74 a day. The way the system is set up leads to a “front-loading” of costs, as fees can be charged at a high rate until the cap.

Where it was taking Centrelink 12 weeks to process the income and assets forms, it’s down to about three weeks, Intagliata says .

“Where some facilities won’t accept a ­person without the necessary Centrelink form, others have been letting people in an on agreed-cost basis and charging an agreed means-tested care fee until they are able to get the full picture,” Intagliata says.

While this arrangement will work better for some, he says, “It makes the process longer – which was not the intention.

The accommodation costs are more transparent because facilities are required to advertise their costs – which means ­people can plan on how they may pay for it.  But someone can be ready to go in and the facility won’t take them because the forms aren’t complete,” Intagliata says.

One aim of the reform was to give greater control to the individual or families than the facilities over the payment of the accommodation charges.

“Since July 1, 2014, a resident has 28 days [after moving in] to inform the facility how they intend to pay the accommodation charge – whether it is by refundable accommodation deposit or daily accommodation payment,” Intagliata says.

If after 28 days the resident hasn’t informed the facility, it defaults to a daily accommodation payment. “The payment by deposit [RAD] or daily payments [DAP] may be optional in theory but the practical side is different, especially when it comes to the resident’s liquidity,” says aged care specialist adviser Jeremy Gillman-Wells, authorised representative of AMP Financial Planning.

“It’s important to find out the minimum RAD the facility charges. This will help the family and/or adviser work out the best funding strategy to achieve the quickest placement,” he adds.

Financial considerations will include whether to pay a full or part deposit, or a combination of deposit and daily fees, as well as whether the daily fee should be deducted from your cash flow or drawn down from the partial deposit.
Advice on minimising costs

“The [daily accommodation payment] can be deducted from the lump sum[partial deposit], which is a huge benefit, especially where the care contribution fee makes cash flow difficult to manage until you hit the $25,000 annual maximum,” ­Gillman-Wells says.

He says the timing of entry into aged care for members of a couple, and the timing of completing the income and assets assessment, can have a huge impact on the accommodation payment, means-tested fees and government entitlements.

Other key considerations are whether the family home is kept and rented out or sold. Gillman-Wells says an experienced adviser will help people maximise their ­Centrelink or Department of Veterans’ Affairs entitlements and give advice on how to minimise aged-care costs, maximise cash flow and preserve maximum value for the estate.

“In one instance, after negotiation with a facility and restructuring of assets, we were able to save a resident over $50,000 a year in care and extra services fees,” he says.

*Not her real name