Aged care has been in the headlines lately, with emphasis on the long time it takes for an assessment for aged care to be conducted, and then the long wait for what has been approved to happen.
At the same time, the deeming rates have been changed. While there has been much publicity about their effect on the age pension, very little has been written about their effect on aged care fees.
And this is where the real story lies: deeming affects everyone receiving aged care, whether it’s a home care package or residential aged care. The biggest impact is likely to fall on self-funded retirees, because they usually hold more financial assets than full pensioners.
With home care packages, everyone pays a basic daily fee (BDF) of about $12 a day. What you pay beyond this depends on your income, so it is called an income-tested care fee.
Full pensioners don’t pay it, because the thresholds are set at the maximum income a full pensioner can have.
But part-pensioners can pay up to $6,862 a year, while self-funded retirees can be slugged up to $13,724 a year.
What comes as a surprise to many retirees is that their ‘income’ is not based on taxable income, or even actual investment earnings, but on Centrelink’s deeming rules.
And on 20 September, the deeming rates used will rise by half a per cent.
Right now, singles are deemed to earn 0.25% on the first $64,200 of financial assets, and 2.25% above that threshold.
For couples, it’s 0.25% on the first $106,200, and 2.25% above that.
From 20 September, the rates will increase to 0.75% up to the threshold, and 2.75% above that.
Aged Care Guru, Rachel Lane, gives the following examples. John, a self-funded retiree receiving a home care package, has $3 million in investments.
With the current rates, he is deemed to earn $66,216 a year and pays $20 a day—almost $7,300 a year—as an income-tested care fee.
From September, his deemed income will rise to $81,216 (an increase of $15,000), and he will have to pay the maximum fee of $37.70 a day towards his care.
Residential aged care uses a combination of your assets and your income to calculate your care fees. Just like with home care, deeming is applied to your investments to calculate your income.
That means many part-pensioners and self-funded retirees will see their contributions rise.
Take Judy, a self-funded retiree who moved into an aged care home earlier this year, paying a refundable accommodation deposit of $500,000.
She has $1.4 million in financial assets. Under current rates, she is deemed to earn $30,216 a year.
From September, that will increase to $37,216. Right now, Judy pays almost $86 a day—$31,357 a year—as a means-tested care fee.
After the deeming increase, her fee will rise to just over $90 a day, or close to $33,000 a year.
A small rise in deeming rates may sound minor, but for older Australians in aged care, it can mean thousands more in fees.
Many self-funded retirees will feel the effect, and some may hit the maximum. It’s a timely reminder that aged care fees don’t depend on what you actually earn, but on what the government deems you to earn.
Aged care is one of the most complicated areas in the financial services sector. That’s why it’s so important to seek quality advice to optimise your affairs.
There are now specialist investment products available, designed specifically for people like John and Judy in the case studies above, which can significantly reduce the pain.
And, of course, the earlier you act and get the right advice, the easier it is to protect your wealth and manage the costs of aged care effectively.
About the author:
Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.
Seniors Discount Club
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