• Repayment from the person’s estate when a remaining spouse, partner or dependent child no longer lives in the home or ceases to be a dependent; • Once the outstanding loan, including interest reaches the maximum limit, no additional amounts can be drawn and no additional interest charges would be applied; and • Draw downs from the loan would not be assessed if immediately applied to approved aged care expenses. The ACHC scheme would enable a remaining spouse or dependent child to continue living in the home.
Australian Age Pensioners Savings Account
The report also proposed that a savings account be introduced – the Australian Age Pensioners Savings Account (AAPSA) – which will be exempt for Centrelink and DVA purposes means testing. Care recipients who sell their home may invest the sale proceeds in this fee-free account and earn at the rate equivalent to the CPI. The investment can only be drawn on for approved aged care costs but
will assist them in retaining pension entitlements. The exempt status of this proposed investment scheme would attract home sale proceeds that would in the current system be channelled to exempt accommodation bonds in a strategy used to increase pension entitlements and reduce income tested fees. The strategy would no longer be viable under the proposed system because bonds would no longer be exempt from Centrelink means tests and would not pay interest. Although the introduction of the AAPSA would impact on funding for aged care providers, this would benefit residents who receive the Age pension.
Transition and ‘grandfathering’ If the recommendations are taken up, major changes would be made to the whole aged care system. The reforms are far-reaching and multifaceted. Most reforms could be implemented over a five year period. More detail would be needed to implement this. Careful monitoring and co-ordination would be the key to minimise
disruption in support for aged care providers and care recipients. More importantly, the supply and quality of care should not be compromised. It is expected that arrangements already in place before the propopsed system commences would be ‘grandfathered’.
Conclusion Although aged care costs are largely subsidised by the taxpayers via the Government, the reality is the current level of subsidy would not be sustainable over the long-term. A lot of concessions would be abolished but there is more scope for choice. A cut to subsidies may not go well for some, but it may be something that we can get used to. It remains to be seen how soon the Government can respond to these recommendations. It will take a lot of political will to implement some of the recommendations. As more details come out, financial planners will need to rethink strategies when providing financial advice to aged care entrants. Janet Manzanero-Caruana is Technical Consultant, Advice and Private Banks, BTFG.
BILL SHORTEN, MATHIAS CORMANN AND DAVID WHITELEY
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financial planning | SEPTEMBER 2011 | 37