The Association of Superannuation Funds (ASFA) is looking for ways to help its members prepare better for aged care, and according to its chief executive this may result in new home equity schemes to fund nursing home costs.
In her address to the ASFA conference recently, Pauline Vamos noted that the government would soon experience a heavier fiscal load due to the ageing population and when this happens, seniors would be pressured to fund health and aged care costs on their own. Consequently, the association is calling its superannuation fund members to improve their planning and preparation for retirement, and the development of new financial products to fund aged care through home equity is one of the measures the association suggests.
Ms Pauline Vamos made a forecast that by 2055 aged care costs would represent an annual hit to the federal budget of $220 billion. According to a paper prepared by Ms Vamos, this would likely result in funding cuts to the sector.
The ASFA paper explores the possibility of innovating super funds by developing financial products that tap into real estate in order to release housing equity. The paper suggested mechanisms such as downsizing, equity release products, or contingent loans could be used for aged care costs.
For most retirees the home is their greatest asset. In a political environment of growing pressure on the federal budget and mounting debate regarding the fairness of government providing aged pension to wealthy home owners, the family home is increasingly being regarded as a source of funding for retirement
In 2055 when the local 30 year-olds of today are retiring in Adelaide, federal government expenditure on aged care is projected to reach $290 billion. Even if the government decides not to cut health and aged care funding, the higher volumes of seniors will inevitably mean that more people will need to find ways to fund aged care for themselves.
According to AFSA, in 2008 a woman aged 65 years had a 54% chance of needing residential aged care and men on the other hand stood a 37% chance of requiring full-time aged care (men have shorter life expectancy). Seven years later, the average woman is now facing an ‘odds-on chance’ that she will soon need to enter a residential aged care that she can barely afford.
Ross Clare, director of policy of ASFA, said that people today are more likely to have the need for aged care services because of increased life expectancy. And as people live longer, there is a higher chance that they would need greater level and quality of care, especially those who have ailments such as dementia.
It seems that perhaps more than ever, Adelaide residents need better access to financial products and services to help them navigate aged care successfully. Equity release products such as reverse mortgage should be explored by individuals as a legitimate option, but good financial advice and that plans for the future may still be the best preparation for seniors who want quality of life in their retirement years.