Aged care reforms

Aged care in Australia has recently gone through some key reforms. We look at what the main changes are and why it’s more important than ever to plan ahead for the care of loved ones.

Our ageing population

On 1 July 2014, the Government launched a whole raft of changes to aged care as well as a new website www.myagedcare.gov.au – to help explain them.

These reforms were part of a response to a growing, elderly, Australian population. According to ageing research done by the Arc Centre of Excellence in Population Ageing Research (CEPAR), “Australians aged 85 plus are projected to increase from two per cent of the population to anywhere between three and nine per cent by 2050”.

Plus, as we live longer, there’s a higher chance we may suffer illness in our old age. “Currently one fifth of people aged 65 and over say they need care and lifetime risk estimates suggest that half of men and two thirds of women aged 65 will need formal aged care in their remaining lifetime,” says the CEPAR report1.

The cost

The cost to care for someone in a residential facility can be as high as $79,683 per year2 and these costs are heavily subsidised by the Government, which spends over $15 billion a year on aged care. A rapidly expanding elderly population ultimately means an increasingly expensive financial burden on the government. The aged care reforms are a way of mitigating some of these ballooning costs.

Key areas of reform

The changes and impacts of the reforms are complex but can be summarized as follows:

•  The distinction between low care and high care have been removed.
• Entry fees for residential care are now calculated as a fully refundable lump sum (with no retention amount) and residents have 28 days after moving in to decide whether to pay a lump sum, periodic interest payments or a combination of both.
• Bonds continue to be guaranteed by the Government.
•  The income-tested daily care fee has changed to a means-tested care fee using both assets and income testing. These fees are capped at the current level of $25,349 (indexed) per year and $60,838 (indexed) over a lifetime3. This fee continues to be in addition to the basic daily care fee (which is set at 85 per cent of the basic single age pension).
• Residential care facilities now have greater ability to offer extra-service packages for an additional fee. These packages can be made available to all residents and residents can choose to opt-in or opt-out of these services.

Putting a plan in place

So, what does this mean for you and your family? Before they get less independent, it’s essential to find out what older loved ones want to happen and how much will that cost.

Getting advice

Choices around aged care can also mean selling houses and changing retirement income structures and a whole range of other financial considerations.

Source: BT Financial

Talk to Wynyard Park Private Wealth who can help you navigate the maze of aged care.

 1 CEPAR Research Brief 2014/1 Aged care in Australia: Part I – Policy, demand and funding, page 3

2 $79,683= $17,210 (annualized basic daily care fee) + $25,349 (annualized means tested care fee) + $37,124 (annualized maximum daily accommodation payment, based on a RAD of $550,000 and an interest rate of 6.75%). Figures current at 1 January 2015.

3 As at 1 January 2015