Senior Australians receiving aged care, whether that’s a home care package or residential aged care, are about to see the cost go up.
Indexation of the Age Pension will see pensioners receive up to an extra $39 per fortnight, but that same indexation means an increase to aged care Basic Daily Fees.
You see, aged care Basic Daily Fees are set based on a percentage of the Age Pension.
In Home Care the maximum Basic Daily Fee is set at 17.5% of the basic Age Pension (and applies to people on a Level 4 Package). The $39 fortnightly increase to the Age pension means an increase of up to $6.30 per fortnight to the cost of a home care package.
In residential aged care the Basic Daily Fee is set at 85% of the Age Pension indexation increased the fee from $54.69 per day to $56.87 per day. This means that pensioners living in aged care are only getting $8 of the $39 pension increase, with the other $31 paid to the Basic Daily Fee.
Indexation will also catch those moving into an aged care home after 1 October.
The aged care interest rate, known as the Maximum Permissible Interest Rate or MPIR, is indexed at the start of each quarter, in July it had the biggest rate change since the GFC with the rate jumping from 4.07%p.a to 5%p.a, this rate change will see another jump of more than 1% with the rate hitting 6.31%p.a.
It’s important to know that the new rate only applies to new residents from 1 October, and to some existing residents who choose to move rooms or to another home.
The aged care interest rate is used to maintain equivalence between the lump sum amount and the daily payment. You can choose to pay your cost of aged care accommodation by a lump sum, daily payment or a combination including the option to deduct your daily payment from your lump sum.
For example, if you move into care today and the bed price is $500,000, you could pay that as a lump sum with no daily payment, pay say $200,000 as a lump sum and $41 daily payment, or pay a daily payment of $68 and no lump sum. It’s up to you.
Most residents choose to pay at least some of their accommodation cost by Daily Payment. There are lots of reasons, often people want to keep the family home for sentimental reasons or because it has a capped value of $186,331 for the aged care means test and a 2 year asset test exemption for Age pension. Without selling the home most people don’t have enough capital to pay the whole lump sum.
If you are thinking about moving into aged care, moving before 1 October could save you thousands.
An aged care bed priced at $550,000 has an equivalent daily payment of $75 per day today, if you move in from 1 October it will be $95 per day, so moving today could you save you $7,200 per year if you are going to pay by daily payment. If the price of the bed was $1mil and you were going to pay by daily payment then moving in before 1 October could save you $13,100 per year.
Your aged care contract can have wide ranging implications including on your pension (and other entitlements), cash flow, the cost of care itself and the amount you (or your estate) will receive after you leave.
It is a good idea to seek advice from a Retirement Living and Aged Care Specialist® to make sure you get it right.
*The information contained in this article is general in nature and does not take into account any person’s individual objectives, financial situation or needs. It is not intended to imply any recommendation, opinion or advice. You should seek advice from a qualified professional about your particular financial situation, needs and objectives.