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Congratulations on Living Longer Now Get Ready to Pay The Price!
By Aadil Abbas, Licensed Financial Adviser/Aged Care Specialist
We’ve all heard the adage “the only two constants in life are death and taxes”, I believe we can add inflation to that list.
Whilst everyone is busy dealing with cost-of-living crisis in the present, late last year in September 2024 the government introduced legislation into Parliament to usher in significant aged care reforms intended to be effective from 1 July 2025.
Whilst these are steps in the right direction to ensure a viable Aged Care system for all of us (currently it’s the fastest growing line item in the government budget) these reforms will also increase the cost of growing old in our homes or in an aged care facility in the coming years.
It is important to note the government also announced grandfathering provisions for those already accessing the home care and aged care system. So, changes discussed in this article only apply to those who will look to access support services from 1 July 2025 onwards.
And whilst you may not consider yourself as one of those people who will need any support as you grow old, the stats tell a different story.
Based on ABS data, in 2022, 4 out of 10 older Australians (those above the age of 65) needed assistance with at least one personal or everyday activity such as household chores, visiting the GP/medical appointments, grocery shopping or property maintenance. This increases to 7 out 10 individuals needing assistance for those aged 85 years or over.
So it may be best to start planning in your ‘active’ years for the support you may require in the Quiet and Frailty years of retirement, because remember that life expectancy number in the picture below is an average. And if you have long bucket list, then you probably don’t want to be average in this regard.
Let’s start with support and services costs associated with growing old in the comfort our home.
Most people when they first seek support services from 1 July 2025 will deal with a revised home care program which will now be called Support at Home. These were until now called Home Care Packages (CHP) or the Commonwealth Home Support Program (CHSP) depending on the support required.
The revised Support at Home program will provide funding for:
1. Clinical care (e.g. nursing care, occupational therapy)
2. Independence (e.g. help with showering, getting dressed or taking medications)
3. Everyday living (e.g. cleaning, gardening, shopping or meal preparation)
The Government has confirmed it will pay 100% of clinical care services, with individual contributions going towards independence and everyday living costs.
However, from a cost perspective the most significant change being introduced is that amount payable for independence and everyday living costs will be based on the Age Pension income and assets test. Under the current rule, the income tested fee was based on income only.
As the table below show bringing the means testing for home care support in line with the age pension means test will result in people who have the financial means to pay more will be asked to contribute more.
Now let’s look at changes to the cost of moving into an aged care /nursing home facility.
Summary of key changes:
- Introduction of new fees
- Aged care facilities to be able to retain 10% of the Refundable Accommodation Deposit (RAD) versus a full refund of this deposit currently. For example, a $500K RAD payment from 1 July 2025 will see a maximum deduction of -$50K over a 5 year stay period versus a full refund to the estate as per current rules.
- Twice a year indexation of the Daily Accommodation Payment (DAP) versus a fixed percentage determined at time of entry currently
Below is an indicative analysis of increase in annual costs based on financial asset (excluding the family home)
So, someone with $1m in financial assets, which includes your super balance, who moves into an aged care facility from 1 July 2025 onwards, will need to find an additional $28K of cashflow each year moving forward compared to current rules.
Given an average stay of 3.5 yrs in an aged care home that’s an additional -$100K of costs. If you add in the -$35K deduction (over a 3.5yr period) on the initial $500K initial deposit it’s total additional cost of -$135K. Not an insignificant amount of money I’d say.
Given the large sums of money involved, advance planning and getting professional advice maybe become critical to ensure sustainability of funding these increased costs and minimising impact on your legacy/estate planning goals.
Your future self, your partner and your kids will thank you for getting started today and not ignoring financial realities of ageing. Remember death, taxes and inflation aren’t going away anytime soon, at least on this planet.
Aadil Abbas, Licensed Financial Adviser/Aged Care Specialist
Own Financial Planning
Ownfinancialplanning.com.au
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