Increased cashflow pressure for aged care

Remove the stress of funding aged care needs with advice on your options – nothing stays the same, and some fees just got higher.

Two things happened on 1 October that have seen aged care costs increase for some people in residential care – the interest rate increased and so did the maximum daily means-tested care fee. And these changes follow closely after the 20 September indexation, which saw a bigger jump than usual.

While these changes have been significant, they may not significantly impact a lot of people already in aged care, but they certainly do change some of the decisions you might have already made or you are thinking about.

This article provides a quick summary of what you need to know.

Increase in the interest rate

In residential care you have a choice to pay for your room as a lump sum or a daily fee. This choice will be based around what assets you have and the interest rate that is used to convert the lump sum into the daily fee.

On 1 October the interest rate jumped from 5.00% to 6.31% per annum, making the daily fee (or “rental” option) a lot more expensive. The good news is that this does not matter if you are already in care, as the rate was fixed when you entered care. But if you are moving into care now, or in the future, this makes your daily room price more expensive and more people may choose to liquidate assets to pay the lump sum – refundable accommodation deposit (RAD).

But this choice should not be based on just interest rates. You also need to consider your objectives, liquidity, taxation, estate planning and impact on age pension entitlements as well as means-tested care fees. This is where we can help with a full analysis and advice on your options so you can make better and more informed decisions.

Interestingly, if you are assessed as low-means the rules are quite different and the higher interest rates don’t impact your daily room price but it can make the lump sum option relatively cheaper.

Increase in the daily cap for means-tested fees

How much you are asked to contribute towards your ongoing care costs is based on an assessment of your assets and income – through a means-test assessment. This means-tested fee is subject to a daily cap (maximum), an annual cap and a lifetime cap.

A new government funding model that started on 1 October saw the daily cap increase from $264.81 per day up to $358.41 per day. This applies to people already in care, as well as those who have not yet moved in.

The higher cap will mostly affect people with higher levels of assets and income, who may now be asked to pay a lot more for their care on a daily basis, but only until they reach the annual cap ($30,574). It is mostly an issue for cashflow management. Some self-funded retirees who previously chose to not disclose finances to Services Australia may want to consider changing their mind, to reduce how much they have to pay on a daily basis.

The change might also have an impact on cashflow for residents when they first move into residential care and are waiting for their means-test assessment to be determined by Services Australia. Ensuring you have all the paperwork done quickly (and accurately) will be even more important. Again, we can help.

Indexation on 20 September

This change affects everyone in care. Many of the financial numbers index every year on 20 March, 1 July and 20 September. Due to the current higher levels of inflation, we saw a bigger jump than normal on 20 September – with the basic daily care fee increasing by just over $2 per day to $56.87. The only good thing is that age pensions also increased at the same time.

We are here to help

Moving into aged care is already a stressful time but you don’t need to worry about the finances on your own because we can help. As experienced advisers who are accredited in aged care advice, we can work with you to calculate costs, evaluate options and provide advice on strategies to manage your cashflow and protect your estate values.

If you (or a spouse or family member) are already in care and are paying a daily fee for your room or have been paying the maximum means-tested fee, now might be a good time to reach out for advice on any changes needed to ensure you can continue to afford your care.

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