RAD Prices Set to Soar

by Rachel Lane, Principal, Aged Care Gurus

The pension asset test changes are now less than a year away. From 1 January 2017, the amount of assets that a person can have before their pension reduces will increase (slightly) and the rate at which their pension reduces beyond that point will double. ALL means tested pensioners will be affected, i.e there is no grandfathering.

• A Single Homeowner will have an asset test threshold of $250,000 and their pension will be cut off at $547,000. 
• A Single Non-Homeowner will have an asset test threshold of $450,000and their pension will be cut off at $747,000. 
• A Couple Homeowner will have an asset test threshold of $375,000 and their pension will be cut off at $823,000. 
• A Couple Non-Homeowner will have an asset test threshold of $575,000and their pension will be cut off at $1,023,000. 

The other change anticipated from 1 January 2017 was announced in the government's Mid-Year Economic and Fiscal Outlook (MYEFO), a policy decision to include rent from the former home in the calculation of pension entitlement and for the home to no longer enjoy the asset test exemption (we expect the 2 year general exemption will remain).
 
From an aged care perspective removing the exemptions that apply to the family home is likely to encourage residents to sell their home and pay for their cost of aged care accommodation by RAD (Refundable Accommodation Deposit). Beds that have a higher RAD price may become the bed of choice as residents try to preserve capital and maintain their pension entitlement.

For example: A full pensioner who sells a $1,000,000 house to fund a $400,000 RAD will lose around $21,447p.a of pension. The money they net will earn around $14,600p.a. to replace the lost pension they will literally need to eat $8,000p.a of their capital. If the facility had a RAD price of $1,000,000 they would continue to receive the full pension (currently $22,721p.a) and their means tested care fee would reduce by around $1,967p.a.
 
Resident’s should seek advice to ensure that they understand the implications of their aged care choices now and post 1 January.

The free Understanding the cost of Aged Care booklet by Aged Care Gurus has been updated – if you would like to order copies for your prospective residents you can contact your local guru or email us at asktheguru@agedcaregurus.com.au.

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