Once your income exceeds that of a full pensioner – about $27,000 a year – the income test will include 50 cents for each dollar of income above this.
On the asset-test side of the equation, the first $49,500 is disregarded and assets between $49,000 and $168,000 attract a contribution of 17.5 per cent.
The two tests are added together. Let’s look at a common example.
Shirley is a full pensioner with $90,000 in the bank and personal assets of $5,000.
Her income-tested contribution would be zero. As a full pensioner, her income is below the threshold.
Shirley’s asset-tested contribution would be $22 a day, so she will pay the basic daily fee of $51 plus a Daily Accommodation Contribution of $22.
Just like market-price residents, she can choose to pay her accommodation cost by a daily charge, lump sum or a combination.
In Shirley’s case, her lump sum would be $144,122.
For Shirley, asset-reduction strategies – such as gifting, pre-paying funeral expenses or purchasing an annuity with an asset-test exemption – can reduce the cost of aged care substantially.
After all, her contribution is being calculated at 17.5 per cent of her assets above $49,500.
Think of it this way. For every $10,000 you reduce the assessable assets, the cost of your aged care reduces by $1,750 a year.
Reducing Shirley’s assessable assets from $95,000 to $55,000 would see her Daily Accommodation Contribution drop from $22 to less than $3 a day – a saving of $7,000 a year.
For a significant number of people, they can qualify as a low-means resident because a “protected person,” such as a carer, is living in their home, exempting the asset.
However, just because you can be a low-means resident doesn’t mean you should.
You need to think about the longer term.
If the “protected person” is going to leave the home and the house is sold, then there will be implications for the cost of care and pension entitlement.
A low-means resident will not become a market-price payer but their Accommodation Contribution can increase up to a maximum of $57 a day. In addition, a means-tested care fee can also become payable.
Seeking advice from a retirement living and aged care specialist is crucial to ensuring that you have the best strategy to meet your cost of care – now and in the future.
Rachel Lane is the principal of Aged Care Gurus