Aged care funding options

Maurice Patane outlines some of the aged care funding options available.

Aged care funding options

Following the death of her carer, Angela’s mother has had to be placed in aged care, but funding is an issue. YOURLifeChoices no-nonsense financial planner Maurice Patane outlines some of her options.

Q. Angela

My 91-year-old mother has recently had to be put in aged care because my brother, who was her primary carer, has passed away. My mother is currently in aged care in South Australia but as I live in Western Australia, and cannot move due to work commitments, she can no longer stay at home as she needs 24-hour care.

The aged care facility is very expensive and my younger brother, who is now her power of attorney, has to sell her home to put up a bond. However, this will still not cover the bond of $495,000 as her home is valued at approximately $350,000.

Is there any government help which we can apply for to meet the shortfall of approximately $93 per day, which is on top of 85 per cent of her Age Pension?

A. Provided by our no-nonsense planner, Maurice Patane
I am sorry to hear of the loss of your brother.  Give yourself the time to grieve as your mother has a number of options. Aged care planning is tricky but I have always maintained that it is a life decision, balanced with a financial decision. 

The costs for her care need to be broken down to the cost of accommodation and then the cost of living expenses and care.

Based on the information which you have provided, your mother will not qualify as a low-means resident. This means she will not qualify for government help with the cost of accommodation, but it will subsidise her care.  You could speak to the aged care facility and see if it would be willing to negotiate a lower accommodation payment for her.

You do have choices on how to pay for accommodation which can help with managing payments. Assuming that the facility will not reduce its price she will need to pay:

  • a lump sum (refundable accommodation payment) of $495,000; or
  • a daily amount (daily accommodation payment) of $89.91 per day; or
  • a combination of both.

If she does not have enough in assets, you may need to look at a combination option. If she sells the home and receives a net amount of $350,000, she could pay up to $304,500 as a lump sum (leaving her with the required $45,500). You should note that the lump sum paid is government-guaranteed and fully refundable if paid to an accredited facility. 

This leaves an outstanding amount of $190,500, which can be paid as a daily fee of $34.60. To help with cashflow, this daily fee can be funded from the lump sum amount paid. This would reduce the refundable amount each year and subsequently increase the daily amount. Think of it as a reverse mortgage from the amount paid.

After covering the cost of accommodation, your mother will need to pay for her living expenses and care. This part is heavily subsidised by government. She will be asked to pay a basic daily fee, which is set at 85 per cent of the single Age Pension, and equates to $47.15 per day ($17,210 pa). She may also be asked to pay a means-tested fee which is determined by a combination of an income-tested and asset-tested amount. Based on the above information, your mother may be required to pay a means tested fee of around $5.48 per day ($2000 pa).

In summary, your mother will be left with a surplus cash flow position of around $4000 pa (15 per cent of her Age Pension and interest income), which can be used to provide for other personal expenses or to partially fund the daily payment. 

But maybe there’s an even better alternative. You should get help from a financial professional who you really trust, and who will help you to make better decisions, as there are many issues to consider as part of her aged care and associated planning. 
Maurice Patane has been a financial planner for over 25 years. His experience has shown him that many Australians are not living the lives they dream of or wish for, which is often due to poor financial decision-making. Maurice is dedicated to helping everyday Australians take control of their financial future, so that they no longer have to worry about money.

Maurice Patane
Access Financial Management AFSL 229760
Ph (03) 9500 9988


    To make a comment, please register or login
    21st Oct 2014
    Hello Angela,

    Thank you to Maurice for his comments. Another alternative may be to use Equity Release on your mother's home to provide a part lump sum to the facility and rent out the family home. Rental income would have no effect on your mother's aged pension entitlements, reduce her means tested fee, and go towards the daily costs, Any shortfall can be paid from the lump sum contribution. Your mother's situation should have a cash flow analysis on a number of scenarios to determine which best suits her needs.

    Paul Dwyer
    21st Oct 2014
    Accommodation Bonds are becoming a popular option with those entering high care residential living (nursing homes). I am an (ASIC registered) Credit Adviser and have been successful in sourcing loans of this type. Judy West 0419 665717 (JUDY WEST FINANCE).
    21st Oct 2014
    Further to Judy's comments -

    Accommodation Bands have been replaced by Refundable Accommodation Deposits or Daily Accommodation Payments since the 1st July.
    Also there is no longer any difference between high care and low care.

    Credit (a Loan) may assist families in making the accommodation payment for a parent without selling the family home, but Credit is only one consideration.
    Structure of care and accommodation payments, Centrelink and minimising means testing all have to be considered, together with renting the family home without affecting aged pension entitlements

    Paul Dwyer
    Australian Credit Licence 387310
    Aged Care Finance Solutions - National Advisers

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