Aged care bonds. How will your parents fund theirs?

If your parents are getting older, it’s important for you to understand as much as possible about their options, especially with new Government aged care reforms are just around the corner.

Your parents may have reached the stage where they need more help and are counting on you to help them make major life decisions – including financial ones. Even if this hasn’t happened yet, it’s important to be prepared. And this starts with being informed.

It’s no secret that Australians are living longer. In 2007, 14.5 million Australians were aged under 50, but in just 50 years, 8.7 million of these people are likely to be aged between 50 to 992.

Over the years the Australian Government has introduced measures to help meet the needs of our ageing population, including compulsory Superannuation for employees and relaxing the laws on the retirement age.

More recently, the Gillard Government introduced a string of reforms that will affect the way we pay for aged care, most of which will come into force in 2014.

So here’s a rundown on some of the new Government aged care reforms – and what to think about if your parents are considering moving into a retirement home.

Bonds and daily care fees

If your parents decide to move into an aged care facility, they’ll usually need to pay an accommodation bond. These can be quite substantial, with many people selling the family home to fund this expense. In addition, your parents will need to pay a daily care fee, set by the aged care facility.

Currently, your parents may have the option to pay a larger bond upfront – often the full value they receive from the sale of their home – in return for lower daily care fees. By doing this, they can effectively reduce their means-tested assets and may become eligible for a higher age pension.

What’s changing?

From 2014, this is set to change, with new laws capping accommodation bonds at $500,000.

This will push the cost of daily care fees higher. However, the new laws also set an annual cap for care fees of $25,000 and a lifetime cap of $60,000 for those living in residential care and nursing homes.

For people being cared for at home, there will be an annual cap of $5,000 in care fees for pensioners and up to $10,000 for seniors with an income over $43,000.

How these changes may affect your parents

Under the new laws, if your parents decide to keep the family house, it will be exempt from means testing for the age pension.

However, if they choose to sell it to cover the cost of their accommodation bond and to pay for their daily care, they will no longer be able to protect some of the money from means-testing by paying a larger bond, as they can under the current laws.

Instead, any money remaining from the sales of the house will be assessed. This could have an impact when working out their aged-care contribution, daily fees and age pension entitlement.

How to help your parents

None of us look forward to the day when our parents are no longer able to take care of themselves, but the time may come sooner than you think. That’s why it makes sense to talk to your parents now and find out what they want to do if they need more care in the future.

It’s also a good idea to find out more about what options they have. A good place to start is at The Aged Care Assessment Team (ACAT – known as ACAS in Victoria) can explain what help is available to your parents and how they can access it.

You should also make sure they understand about the aged care law reforms and what it could mean for them. In some cases, your parents may decide it’s better for them to act now before the laws change.

But if they don’t, it’s essential that they know how it could affect their retirement savings and their entitlement to the age pension. And as everyone’s situation is different – in terms of the assets they have to retirement homes they choose – it’s important to seek professional financial advice.

1ABS (2012) Reflecting a Nation: Stories from the 2011 Census, 2012-2013
2ABS (2009) Future Population Growth And Ageing
Source: CFS

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