Aged Care Advice Workshop Rachel Lane, Principal, Aged Care Gurus

Today’s Session Aged Care 101: Accommodation Payments and Means Testing Impact of the changes that occurred on 1 January 2016 Financial planning considerations post these changes Proposed changes to the treatment of the home from 1 January 2017 Changes to the assets test for pension entitlements from 1 January 2017 Financial planning strategies you can use to safeguard your clients' pensions Where to next?

Aged Care In Australia - TODAY Last year over 1 Million people received care 949,931 care in their own home 224,222 permanent residential aged care 46,851 residential respite

Aged Care In Australia - 2050 Around 3.5 million people will receive care 2.8 million care in their own home 700,000 permanent residential care

Aged Care Fees and Charges Basic Daily Fee RAC/DAC RAD/DAP Means Tested Care Fee

One Formula does it all! 50c per dollar of income above $25,792p.a (single) $25,324p.a (couple) plus 17.5% of assets between $46,500 - $159,631 1% of assets between $159,631 - $385,894 2% of assets above $385,894

One Formula does it all! Less than $54.39p.d = Low Means Resident Calculated amount is maximum Daily Accommodation Contribution (DAC) More than $54.39p.d = Market Price Resident Amount above $54.39p.d is Means Tested Care Fee

Budget 2015 Budget 2015

The Changes in a Nutshell Residents who entered care AFTER 1 January 2016 will have the rent from their former home included in the Aged Care Means Test The rent will continue to be exempt from the calculation of DVA/Centrelink Pension, where the resident is: Paying towards the cost of accommodation by Daily Accommodation Contribution (DAC) or Daily Accommodation Payment (DAP) AND Renting the former home

More change … MYEFO

What the changes have meant Some residents are struggling for cash flow Low RAD or low rent Deducting DAP from RAD Compound interest debt Reverse Mortgage Debt doesn’t always offset RAD Children paying the RAD AAT Case – Whitby vs Dept Secretary Sell the House

Case Study – Mary Mary is 83 House $850,000, rent $500p.w Cash $120,000 Personal Effects $20,000 Facility Market Price $400,000 RAD or $63.12 DAP Estimated expenses of house $4,000p.a Mary is going to pay $50,000 from her cash towards her RAD

Case Study – Mary If Mary moved pre 1/1/16 Basic Daily Fee $48.44 Daily Accommodation Payment (DAP) $58.88* Means Tested Care Fee $3.85 Out of Pocket Expenses $10 Total $121.17p.d/$44,227p.a Age Pension $877pfn/$22,805p.a Rent $26,000p.a Less expenses (rates, insurance, agent fees etc) $4,000p.a Interest @2% $1,400p.a $46,205p.a Cash Flow $1,978p.a

Case Study – Mary If Mary moved post 1/1/16 (now) Basic Daily Fee $48.44 Daily Accommodation Payment (DAP) $55.23* (1/10/16 - 31/12/2016) Means Tested Care Fee $30.32 Out of Pocket Expenses $10 Total $143.99p.d/$52,556p.a Age Pension $877pfn/$22,805p.a Rent $26,000p.a Less expenses (rates, insurance, agent fees etc) $4,000p.a Interest @2% $1,400p.a $46,205p.a Cash Flow -$6,351p.a

Case Study – Mary If Mary moved post 1/1/17 Basic Daily Fee $48.44 Daily Accommodation Payment (DAP) $55.23* Means Tested Care Fee $17.08* Out of Pocket Expenses $10 Total $130.75p.d/$47,724p.a Age Pension $506pfn/$13,156p.a* Rent $500p.w/$26,000p.a Less expenses (rates, insurance, agent fees etc) $4,000p.a Interest @2% $1,400p.a $36,556p.a Cash Flow -$11,168p.a

Pension Changes – 1 Jan 2017

In a Nutshell - Singles Single Homeowner NOW 2017 Single Non-Homeowner Asset Test Threshold $209,000 $250,000 $360,500 $450,000 Asset Test Cut Off $793,750 $542,5000 $945,250 $742,500

In a Nutshell - Couples Couple Homeowner NOW 2017 Couple Non-Homeowner Asset Test Threshold $296,500 $375,000 $448,000 $575,000 Asset Test Cut Off $1,178,500 $816,000 $1,330,000 $1,016,000

Watch out for the income test! Winners People with assets over the threshold now but under after 1 January 2017 Betty is a single homeowner with $248,000 of assets, her entitlement now is $819pfn it will be $877pfn* post reform. Watch out for the income test! If Betty’s assets were $240,000 in investments and $8,000 personal her pension would only increase to around $823pfn*

Winner, Winner Chicken Dinner If Betty: Keeps $150,000 in cash Invests $90,000 in Austock BCT $8,000 personal assets Age Pension $823pfn $877pfn Increase $1,404p.a or 1.56% +Bond Earnings

Not yet a winner Shirley is a non-homeowner $440,000 cash $8,000 personal assets Age Pension Now $698pfn Age Pension Post 1 Jan $698pfn

Winner Shirley is a non-homeowner $150,000 cash $290,000 Austock BCT $8,000 personal assets Age Pension Post 1 Jan $698 $877pfn Increase $4,654p.a or 1.6% + bond earnings

Losers Fred and Shirley have $600,000 in investments and $50,000 in personal assets. Pension now $792pfn (combined) + Int $15,000 = $35,592p.a Pension after $497pfn* (combined) + Int $15,000 = $27,922p.a Their investments need to produce an extra $7,670p.a

Case Study - Jack Jack sold his home to pay a $500,000 RAD $450,000 cash $20,000 personal assets Cost of Care Basic Daily Fee $48.44 p.d Means Tested Care Fee $44.92p.d. Out of Pockets $10p.d = $37,726p.a Pension $17,993p.a

Case Study - Jack If Jack keeps $150,000 cash Invests $300,000 Austock BCT $20,000 personal assets Cost of Care Basic Daily Fee $48.44 p.d Means Tested Care Fee $38.31p.d red $2,413p.a Out of Pockets $10p.d = $35,313p.a Pension $21,245p.a increase $3,252p.a Benefit $5,665p.a or 1.9% plus Bond Earnings

Everyone pays Basic Daily Fee $9.97p.d Home Care packages Everyone pays Basic Daily Fee $9.97p.d Relationship Income Threshold Income Tested Care Fee Capped at Single $25,792p.a @ 50 c per dollar Full pensioners $0 Part pensioners $5,208p.a Self-funded retirees $10,416p.a Couple $20,025p.a Couple Ill Sep $25,324p.a

Changes to Home Care Packages HCP assigned to consumer rather than provider Approval at specific level 1,2,3 or 4 not banded 1,2 or 3,4 My Aged Care will manage wait list and prioritisation HCP is portable nationally Unspent funds transfer to new provider Subsidies are paid to nominated provider Changes to criteria for being approved provider Existing providers of RAC or flexi will have simplified process

Case Study June June is 82, single pensioner receiving a Home Care Package House $800,000 Bank $40,000 Term Deposits $200,000 Personal Assets $10,000 June currently receives $816pfn pension (asset test) Pays $1.64p.d Income Tested Care Fee Post reform her pension will be $823pfn*

Case Study June If June keeps $140,000 in investments and invests $100,000 in an Austock BCT Her pension will be $877pfn* an increase of $54pfn/$1,404p.a. Her HCP Income Tested Care Fee will be $0 A reduction of $599p.a 1.43% + bond earnings

Case Study Bill Bill 85, single pensioner receives a Home Care Package House $1.2M Cash $300,000 Term Deposits $400,000 Personal Assets $20,000 Defined Benefit Super $15,000 Bill’s pension now is $110pfn, post reform $0 Income Tested Care Fee $18p.d

Case Study Bill If Bill kept $300,000 in investments and put $400,000 in an Austock BCT His pension would be $0 post 1 Jan His Income Tested Care Fee would be $0 - a saving of $6,409p.a But how does Bill meet his cash flow needs?

Case Study Bill Bill needs $45,000 per year to live comfortably If he creates a $25,000p.a “income stream” from his bond (assume 3% return) Year Assessable Income Non Assessable 1 $738 $24,262 2 $1,454 $23,546 3 $2,149 $22,851 4 $2,824 $22,176 5 $3,478 $21,522 In 5 years time Bill’s bond is still worth $332,000

Austock Distribution Team Distribution Managers Where to Next? Austock Distribution Team Head of Distribution & IFAs Richard Atkinson 0417 541 897 ratkinson@austock.com National Sales Manager Tony Gobbo 0419 746 595 tony.gobbo@austock.com Distribution Managers  NSW & ACT Jeff Rodgers 0401 443 002 jrodgers@austock.com Joanna Bator 0416 940 041 jbator@austock.com QLD & NT Niall Nugent 0428 269 034 nnugent@austock.com VIC & TAS  Angela Laughlin 0407 858 305  alaughlin@austock.com Melanie Fairbairn 0408 109 681 mfairbairn@austock.com WA & SA Bob Scherini 0449 960 048 bscherini@austock.com Workshops PD Days Support Services Books www.agedcaregurus.com.au