Aged care means-test to force SA home sales, reverse mortgage?

There was some big news for Adelaide seniors in the recent Federal budget: starting next year, a new rule in aged care means testing is expected to force an increase in house sales and reverse mortgage applications amongst Adelaide pensioners and retirees.

Beginning January 1, rental income will no longer be excluded in the calculation of means testing.  The current rules allow residents to enjoy their rental income and use it directly to pay for aged care fees. Many aged care financial experts believe that this tightening on the mean testing will give pensioners limited options to be able afford aged care fees.

If you are due to enter residential aged care before the year ends (and assuming the new legislation passes in the senate), you are lucky because you will enjoy the current rule which provides a rental income exemption from means testing. If you go into a nursing home after January 1, you can expect that the new rule may drastically affect your cash position or even worse, force you to sell your family home or take out a reverse mortgage.

You are probably wondering how exactly does this change affect you? Well, let’s say you are a full pensioner that receives $22,365 worth of pension a year and has $60,000 savings in the bank. You are receiving $18,000 rental income a year and this is what you use to pay for daily accommodation payment. Under the current rule, your daily care fees will be around $17,936 per year. On the other hand, it will increase to around $25,491 a year if you calculate your daily care fees based on the new rule.

Selling your home or taking out a reverse mortgage may be a more viable option because it could give you significant budget savings. But of course, as much as possible, people often want to have the choice of keeping their family home when they make the move to residential aged care. Having the freedom to choose from a range of other options is important.  The announcement about the change in means-testing is quite disappointing. There are many aged care activists now who are questioning whether this is good policy.

The Social Security Act 1991 allows residents of aged care to rent out their home and use their rental income to pay for aged care fees. Effectively, this source of income has been exempted in the calculation of the means-tested care fee for years. But beginning next year, the new rule is set to change the way incoming residents deal with their family home.

The recent announcement came as a surprise as we expect Living Longer Living Better reforms to protect Australians and support them to hold onto the family home if they wish to. This change, however, makes us more vigilant in educating families who are about to avail themselves of aged care services. Knowing and understanding your financial options will avoid costly mistakes and will save you a lot of money.

Is your home worth keeping? Do you want to rent it out? Would reverse mortgage be enough to cover aged care fees?

We will be glad to answer your questions and sit down with you. For a free initial consultation, please call Adelaide Aged Care Financial Advisers at 1300 422 232.

Regards, Carmela

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