Aged Care – Check the fees you are paying

The daily fees you will be asked to pay for residential aged care are based on your financial situation. But more and more providers are charging a fee for additional services, with the ability to set their own fees – so check what you are paying for.

When living in residential aged care you will face three categories of fees:

  1. Accommodation costs – pays for your room and access to available amenities
  2. Daily care fees (basic fee and means-tested fee) – a contribution towards your living and care expenses (eg food, electricity, care staff, cleaning services)
  3. Additional services – extras that may add to your lifestyle or convenience (eg Foxtel, newspapers, meal choices, happy hours, transport services).

We are seeing it become more common for aged care providers to offer a package of additional services for an extra (and sometimes compulsory) daily fee. The provider can set what is included in the packages as well as the prices. This means the range of services and daily price can vary widely.

When deciding where you want to live, make sure you ask the provider for details on additional services, and the prices. Also ask which are compulsory and which are optional.

Check your resident agreement

The Resident Agreement that you will be asked to sign when you accept the offer of a room should detail the cost of your room, the type of room and what additional service fees you have agreed to pay.

For the additional services, read the details in the agreement carefully to understand:

  • What services you are being provided and whether they are things you want
  • The fee you will be asked to pay each day, and
  • Whether you are able to opt-out, and stop paying the fees, if you no longer want to receive the services.

If the provider wants to charge you a fee for a service that you won’t receive the benefit of, this may not be allowed. And sometimes you may be able to negotiate a lower fee or opt out of the services.

Steps to take

Some simple rules may help you to understand your obligations and rights:

  • Always read your Resident Agreement carefully before signing.
  • Ask the service provider to explain the additional service fees and help you understand what you are being asked to pay for.
  • Query fees for services you don’t think you need or want and find out if they are optional and/or allowed under the Aged Care Act.
  • If you have a dispute with the care provider, you can contact the Aged Care Quality and Safety Commission to help resolve.

One of the key planning aspects is to ensure you can create sufficient cashflow from your financial resources to pay your fees, including additional services. We can help to review your finances, calculate your fees and provide advice on how to structure your assets to meet cashflow and protect the value of your estate.

If you would like to know more about how we can be of assistance, please contact our office on 1300 451 339.

IMPORTANT INFORMATION: This document has been prepared by Periapt Advisory Pty Ltd, ABN 67 648 208 253 AFSL 542418, based on our understanding of the relevant legislation at the time of writing. The information is of a general nature only and has been prepared without consideration of any particular individual’s objectives, financial situation, or needs. Before making any decisions, we recommend you consider independent financial advice. Current at 7 March 2023.

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When you need to move from retirement villages

For many people, a retirement village may offer a great retirement living solution, especially when you start to find maintenance on a home more difficult or you want convenient social interactions. You might also be able to access some personal care and home help support.

But as your care needs increase, you might be faced with the decision to move out of the retirement village and into residential aged care. This move will have financial implications and you may need to make decisions around how to structure your finances.

Exiting the retirement village

Retirement village (and land lease community) contracts are commercial arrangements and financial details vary greatly. When you leave (including for a move into residential care) the contract usually terminates and the home is sold to a new resident.

A quick summary of key financial impacts of exit is:     

 Retirement village (lease/licence arrangement)Land-lease community
Amount repaid to you  Depending on the contract, you receive a refund of either the amount you paid or the sale price, less departure fees and other charges. This is often significantly less than you paid when you moved in.You need to sell the home and receive the sale proceeds, less costs of selling.
Departure feesDeferred management fees and refurbishment costs are generally deducted from your refund.You may incur selling fees and expenses.
Access to capital gainsIt depends on the contract whether you receive any share of capital gains, or the operator keeps all gains.Depends on the change in market value – you receive gains if the home is sold for more than you paid.
Ongoing feesOngoing maintenance may be payable until sold, but for a limited number of days.You may incur ongoing fees until your home is sold.

Paying to move into residential care

Like any property sale, the refund from the retirement village may not be paid until the unit is sold. The sale process is often out of your control and timing may be protracted. You may have more control in a land lease community, but you still need to find a buyer.

The aged care fees start when you move into care. Financial advice can help you to plan how to use your other savings to fund the costs in the interim.

Depending on the state where you live, legislation may impose rules that help with this transition by requiring village operators (not land lease) to advance some of the sale proceeds as a lump sum or daily fee to help with aged care accommodation cost.

If you would like to know more about how we can be of assistance, please contact our office on 1300 451 339.

IMPORTANT INFORMATION: This document has been prepared by Periapt Advisory Pty Ltd, ABN 67 648 208 253 AFSL 542418, based on our understanding of the relevant legislation at the time of writing. The information is of a general nature only and has been prepared without consideration of any particular individual’s objectives, financial situation, or needs. Before making any decisions, we recommend you consider independent financial advice. Current at 2 March 2023.

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What’s the DAP from RAD?

Lots of rules and unfamiliar jargon make understanding aged care even more complicated. This article demystifies one of the more common strategies of DAP from RAD.

Understanding aged care can be complicated enough, without needing to decipher all the jargon and acronyms. An example is the “DAP from RAD” strategy, which can be confusing if you don’t understand what all the letters mean.

This strategy is one of the most useful tools we have to make residential aged care affordable, so it is common to hear it used. The main benefit is helping to manage cashflow when paying for your room, by making your money stretch further.

The cost of a residential care room is quoted as a lump sum amount – called a Refundable Accommodation Deposit (RAD). But if you don’t want to pay the lump sum or you don’t have enough money to pay it in full, you can choose to convert all or some into a daily accommodation payment (DAP). This conversion uses an interest rate set by the government – currently 7.06% per annum.

Example:

Henry has been quoted a room price (RAD) of $500,000. He uses $100,000 from his bank account to pay part of this RAD as a lump sum. The remaining $400,000 remains unpaid and he pays $77.37 per day (ie $400,000 x 7.06% / 365 days) as a DAP.

Paying a part RAD and part DAP may solve the problem of insufficient liquid assets. But the next problem to solve is how to create enough cashflow to pay the daily fee (DAP) as well as other ongoing care fees and personal expenses.

This is where the DAP from RAD comes in. Instead of paying the DAP from either cashflow or remaining savings, you can ask the care provider to deduct the DAP from the lump sum RAD that you paid. This is a bit like tapping into another bank account – one that you thought was locked away with no access.

Example:

Henry asks the care provider to deduct the DAP from his RAD. Each month the balance of his RAD account is reduced by the DAP payable. It would take just over three years for the balance to be fully depleted. But at least Harry will be able to plan his finances, knowing that the $100,000 paid will cover his room costs (the DAP) for three years.

Paying some RAD has the benefit of reducing fees and may also help to qualify for a higher age pension as it is an exempt asset when calculating pension entitlements. Paying the DAP out of this RAD then has the benefit of managing cashflow. Getting the balance between a RAD and a DAP is the key to a successful strategy, and this is where independent financial advice can help.

If you would like to know more about how we can be of assistance, please contact our office on 1300 451 339.

IMPORTANT INFORMATION: This document has been prepared by Periapt Advisory Pty Ltd, ABN 67 648 208 253 AFSL 542418, based on our understanding of the relevant legislation at the time of writing. The information is of a general nature only and has been prepared without consideration of any particular individual’s objectives, financial situation, or needs. Before making any decisions, we recommend you consider independent financial advice. Current at 1 February 2023.

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Buy or rent your room in aged care

Think you can’t afford aged care? Advice on your options can help to understand what is affordable and how to best structure your finances.

When you move into residential aged care, the room price might be quoted as a lump sum, but you will have the choice to pay for your room as a lump sum or a daily fee or a combination.

In the same way that you can choose to buy or rent a home, so can you effectively choose to “buy” or “rent” your room in aged care. This choice can help with affordability if you don’t have enough assets to pay the full lump sum or don’t want to sell your assets. But there are a number of important things to consider.

If you pay a lump sum (called a refundable accommodation deposit – RAD) this is not lost money. The balance will be refunded to you or your estate when you leave, with repayment guaranteed by the Federal Government.

While you live in the aged care service, you are giving up access to your money and do not earn interest, but you will reduce the fees that you might otherwise have paid for renting the room. As interest rates increase, so may the benefits of paying the RAD. As a bonus, you might also qualify for additional age pension because the RAD is exempt for Centrelink and Veterans’ Affairs assets testing.

The decision whether to pay the lump sum or the daily fee is not an easy one and requires full analysis of your finances. You need to analyse the benefits and make sure you retain enough liquidity to meet your other ongoing expenses. Your estate plans and family situation may also impact which choice is better.

When making your choice, it is important to look beyond just the impacts when you enter care, but also what might change over time and what happens to your estate. Make your choice easier with independent financial advice.

If you want to see how we can help, contact our office today on 1300 451 339.

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First Home Guarantee Scheme

You may be eligible to purchase your first home with as little as a 5% deposit via the First Home Guarantee Scheme.

How does it work?

You usually need to save a deposit of 20% if you want to borrow to buy a home without needing to pay lenders mortgage insurance (LMI). Under the First Home Guarantee Scheme (formerly the First Home Loan Deposit Scheme), the Government will provide a limited loan guarantee of up to 15% of the home value. This may enable you to buy your first home with a deposit of only 5% and no LMI will be payable.

What are the key points?

  • You’ll need to earn less than the income limit and meet other eligibility conditions
  • The purchase price will be capped, depending on the property’s location.
  • You need to move into the home as your main residence within certain timeframes

Who may be eligible?

To be eligible for the First Home Guarantee Scheme, you must:

  • be an Australian citizen aged 18 years or older
  • earn a taxable income of less than $125,000 pa (for individuals) or $200,000 pa (for couples combined), based on the last financial year
  • not have owned a residential, investment or business property before
  • intend to be an owner-occupier of the purchased property, and
  • be purchasing a home (both newly built and established properties qualify under this scheme).

If you’re a couple, you must be legally married or in a de facto relationship and both of you will need to meet the eligibility criteria.

For more information about the types of properties that may be eligible and important timeframes, see www.nhfic.gov.au

What types of homes can I buy?

Under the scheme, you’re able to purchase an eligible property which includes:

  • an existing freestanding house, townhouse or apartment
  • a house and land package
  • land and a separate contract to construct a home, or
  • off-the-plan townhouse or apartment.

Certain requirements apply depending on the type of property and contract you’re entering into.

What are the property price caps?

Caps apply to the purchase price to ensure participation is spread fairly across the country. The capital city price caps will apply to large regional centres with a population over 250,000, namely the Gold Coast, Newcastle and Lake Macquarie, the Sunshine Coast, Illawarra (Wollongong) and Geelong. The caps for the financial year 2022/2023 are as follows:

State/territoryCapital city and regional centresRest of state
SA$600 000$450 000
NSW$900 000$750 000
VIC$800 000$650 000
QLD$700 000$550 000
WA$600 000$450 000
TAS$600 000$450 000
ACT$750 000–
NT$600 000–

What’s the downside?

While the First Home Guarantee Scheme may help you buy your first home sooner, you need to keep in mind that a smaller deposit means a bigger loan. And a bigger loan means bigger loan repayments, as well as higher total interest payments over the life of the loan. It may be the case that the additional interest payable outweighs the LMI savings. To find out whether the First Home Guarantee Scheme is right for you, you may want to obtain independent financial advice.

Also, if you move out of your home for an extended period of time and rent your home out, the loan may no longer be guaranteed by the Government. You may need to pay additional fees and charges, as well as LMI, depending on factors such as the value of your home and your outstanding debt at that point.

Which lenders are participating and how do I apply?

Applications can be made directly via one of the approved lenders or their authorised representative (such as a mortgage broker). The Government has appointed specific lenders to the panel of mortgage lenders able to offer guarantees under the scheme.

What lending rules apply?

You’ll need to meet your lender’s normal credit criteria to ensure you can service a loan of up to 95% and provide evidence you’ve saved the 5% deposit. Loans must be principal and interest (not interest only) and terms can be up to 30 years.

What other assistance programs are available?

The First Home Guarantee scheme complements (but doesn’t directly interact with) other Government assistance programs. These include the:

  • First Home Super Saver Scheme, where you could save for the deposit on your first home in the concessionally taxed superannuation system
  • First Home Owner Grant, which offsets the effect of Goods and Services Tax on buying or building a home, and
  • State and Territory based stamp duty concessions.

What next?

To find out more about the First Home Guarantee and ways to fund the purchase of your first home, we recommend you seek independent financial advice. You can also find out more at www.nhfic.gov.au

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