Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
Regardless of the final make-up of both houses, aged care is shaping up as a major battleground. Operators are struggling to stay afloat, while families trying to navigate the system find it a maze of red tape. And just to make it harder, major changes are about to hit in two months.
Here’s what you need to know.
From 1 July, aged care homes will be allowed to charge an exit fee — up to 10% over five years. It’s another step towards making them look more like retirement villages.
Ironically, over the past decade, many retirement villages have been trying to look more like aged care homes. Both offer accommodation and some level of support, but the similarities end there. Legally and financially, they are completely different — and it’s crucial to understand the difference before you sign anything.
Retirement villages are governed by state laws. Most people sign leasehold or licence agreements, often registered on title. The property might be a villa, duplex or apartment — usually with one to three bedrooms, a kitchen, a living area, and laundry.
What you pay and what type of contract you sign will determine whether Centrelink considers you a homeowner and whether you qualify for rent assistance. Most people who pay more than $252,000 are considered homeowners. Your home’s value is exempt, but you won’t qualify for rent assistance. If you pay $252,000 or less, you’re classed as a non-homeowner and could receive up to $212 a fortnight.
On top of the entry cost, there’s an ongoing service fee to cover village operating costs, and often an exit fee — usually a percentage of your entry or resale price. Some contracts deduct renovation costs, marketing fees, or a share of any capital gain. Always check whether the operator guarantees to buy back your unit if it doesn’t sell within a certain period.
Aged care homes are a different animal. Most people have a private room and an ensuite, though some share rooms. Newer facilities may offer suites with a sitting area, kitchenette, and balcony. You can pay for aged care as a lump sum (Refundable Accommodation Deposit or RAD), a daily fee (Daily Accommodation Payment or DAP), or a mix of both. If you pay daily, it’s based on the unpaid RAD at the government-set interest rate — currently a steep 8.17%. RADs are government-guaranteed and must be refunded within 14 days of departure or after probate if you pass away.
The real difference is care. Retirement villages generally provide only social amenities. If you need care, it comes via a Home Care Package or a private provider. You’re income-tested, with a capped annual contribution of $13,724. Some villages offer additional support, but offerings vary widely. If they promise an emergency call button, ask: who answers? Are carers on site 24/7? What services do they provide, and at what cost? Can you remain there if your health declines?
In contrast, aged care homes include care as part of the package. Everyone pays the Basic Daily Fee — currently $23,294 annually — plus a means-tested care fee of up to $34,311, depending on your assets and income. Lifetime caps apply: you can’t be charged more than $82,347 across home and residential care.
The bottom line? Aged care homes and retirement villages might both provide housing and a sense of community, but in almost every other respect, they are poles apart. Don’t assume one can replace the other. Always seek advice and understand the fine print before making a commitment.
About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.
