NEWS + VIEWS – 01/11/2024
MARKETS
Domestic markets had a reality check on Wednesday as underlying inflation slowed to 3.5%, which is still above the Reserve Bank’s preferred range. Interest rates are very unlikely to be cut before February next year.
Globally, share markets have been negative. Chinese markets seem to have levelled off after the recent government stimuli caused a spike in the Shanghai Composite index.
The current US reporting season has shown mixed results so far with Technology and Communications sectors continuing to report impressive growth numbers, which has contributed to resilient share markets.
AGED CARE REFORMS
The government has announced significant changes to aged care payments. As the changes have bipartisan support in the Federal Parliament, they will be passed. The current arrangements were not sufficient as almost half of providers could not cover costs and becoming more acute as the population continues to age.
The main thrust of the changes is that residents (subject to means testing) will pay more of everyday and accommodation costs while the government will cover clinical care. The changes will apply from 1 July 2025 for new residents, most of whom will pay more for Aged Care services.
Those in aged care before 1 July 2025 will be ‘no worse off’ in that they will be subject to existing ongoing daily fees although new accommodation payment rules will apply.
Many people considering moving to aged care residences can be intimidated by the rules. While they are reasonably complex, the financial rules are strictly set by the government with variations related to voluntary additional services or quality of accommodation. My personal experience (with a relative) was that providers and government agencies were quite clear and helpful in explaining financial matters as you move through the residential process.
The key issue is choosing the right place with the right staff that suits the prospective resident. As an aside, there are many variations on the type of residence that might suit people with different levels of independence and care requirements.
CHANGES
1) Accommodation payments
Accommodation payments, currently called Refundable Accommodation Deposit (RAD), are a lump sum ‘lent’ to the provider at zero interest rates. Instead of a lump sum, a resident can pay a daily accommodation payment (DAP) based on the RAD multiplied by a government set interest rate. The rate is set such that it is often advantageous to pay the lump sum RAD. Consequently, having the funds to pay the RAD can be beneficial although not essential.
Under the new rules, the maximum allowable accommodation payment will increase from $550,000 to $750,000. The provider will retain 2% of the accommodation payment for up to five years.
RADs may be phased out by 2035 with a review in 2030 to consider the matter.
Where a resident pays a DAP in lieu of a lump sum, under current rules the DAP is calculated by multiplying the RAD by a set interest rate at the date of entry. Under the new rules, DAPs will be indexed to CPI twice per year.
Existing residents will not be impacted.
2) Ongoing Fees
There will be a new means tested fee, Hotelling Contribution, of up to $4,580.75 p.a. Under the current rules, the government pays the provider a Hotelling Supplement of $12.55 per day to assist funding such things as meals, cleaning and laundry. Under the new rules, residents will have to pay some or all of the amount depending on their assets and/or income.
The maximum Hotelling Contribution will be payable for those with assets over $290,454 or income over $103,762 (or a combination thereof).
The current means tested care fee is to be replaced by a new means tested ‘Non-Clinical Care Contribution’ of up to $36,923.40 p.a., which covers the costs of bathing, mobility assistance and lifestyle activities.
The maximum fee of $101.16 per day would be paid by those with assets over $975,000. There will be a lifetime cap of $130,000 or after four years, whichever occurs first. Previously, contributed Support at Home payments would count toward the lifetime cap.
The current ‘additional services’ fee is to be replaced by an ‘Everyday Living Fee’. This fee will only be paid by those wanting the additional services (e.g. newspapers, alcohol).
3) What doesn’t change
The current daily care fee based on 85% of the Age Pension will remain payable by residents.
‘Fully supported’ residents (with assets less than $206,039 or income less than $33,375 p.a.) will only pay the basic daily care fee, and partially supported residents will only pay the basic daily care fee and an accommodation contribution.
4) Means testing
Assets and income included in the asset and income tests will not change. However, new fees and test amounts will mean that fees increase.
As an illustration, the chart below from Colonial First State shows the increases in the means tested fees payable using the assets test.
Source: Colonial First State
SUMMARY
Most residents will pay more when in residential aged care, which will heighten the need for cash flow planning in the years before entering aged care.
A new ‘Support at Home’ package will also be implemented by 1 July 2025 for those remaining at home with need for assistance. This is another topic for another time.
Gerard O’Shaughnessy
P 0423 771 330
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