What happens to the Age Pension when moving into residential care?
Residential aged care is needed when a senior can no longer be adequately cared for at home. As a general rule, this happens when a senior can’t safely walk around indoors alone and/or who can’t remember to go to the toilet.
The Commonwealth government subsidises the costs of residential aged care for most Australians and restricts access to Commonwealth subsidised aged care to those seniors assessed as needing ‘personal support and nursing care.’
Financing costs when a partnered senior enters residential aged care
Those staying in residential aged-care facilities are charged a basic daily fee. This is set at 85% of the single person rate of Age Pension. A couple in residential aged care will each be charged this fee even if they share a double room in an aged-care facility.
To ensure that all seniors who need residential aged care can afford the basic daily fee, Centrelink has a special category for ‘couples separated by illness.’ As soon as one member of a couple enters residential aged care they become a couple separated by illness.
Each of the couple separated by illness is eligible for the single rate of Age Pension adjusted under the couples asset and income tests. As long as one partner stays living in their family home, the couple separated by illness continue to be considered ‘homeowners’ at Centrelink.
Nancy and Neil’s story
Consider Nancy and Neil, an elderly couple living in their own home. They each receive the full partnered rate of Age Pension because they have no major assets other than their home. Neil is very forgetful, and he becomes frustrated and angry when he can’t do simple tasks for himself.
Nancy is no longer agile, but her mind is sharp. She worries that Neil might get hurt when he’s outside alone. The family decides that Neil will stay in residential aged care while Nancy has her hip replacement.
Neil agrees to enter residential aged care for a short term, but this becomes permanent. Neil and Nancy are now a couple separated by illness. His single-rate Age Pension covers the basic daily fee for his residential aged care. Nancy also receives the single rate of Age Pension to cover her costs of living in the family home.
Homeowner status for aged-care entrants
For Age Pension purposes, seniors who become permanent residents of Commonwealth-regulated residential aged care facilities may continue as ‘homeowners’ for two years after they last stayed overnight in their home. Once they’ve both been away from their home for two years—730 nights—the former home will be treated as an investment property and they will be assessed for Age Pension as ‘non-homeowners.’
The normal one-year absence from home for pensioners is extended to two years for entrants to permanent residential aged care. This extension reflects the prolonged periods that seniors could spend in hospital and rehabilitation before being assessed as needing residential aged care.
Then there’s the period required to find a suitable aged care place before the family is ready to think about selling their parents’ former home.
Consider Mary, a single Age Pensioner living alone. Mary had a fall and fractured her hip. The bones healed but Mary had lost her ability to walk confidently. Five months of physiotherapy were completed before the doctors told Mary’s family that she wasn’t strong enough to live alone again and must move into residential aged care.
Another five months passed before the family had settled Mary into residential aged care. Then they started sorting Mary’s personal things and preparing her former home for sale.
Her family needed well over a year from when she fell until they actually received the money from the sale of her former home.
Mary used much of the money from the sale of her former home to pay the Refundable Accommodation Deposit (RAD) for her residential aged care. The amount of the RAD is not counted as an ‘assessable asset’ for the Age Pension asset test. For Age Pension purposes, Mary is then a ‘non-homeowner’ with some financial assets together with minimum value personal assets.
Centrelink also assesses the amount of ‘accommodation contribution’ and ‘means-tested care fees’ that each aged-care resident must pay. Centrelink uses the same personal income and assets information together with the amount of the resident’s RAD account to determine these means-tested payment rates.
Aged-care fees are complex, be sure to get help with understanding the full costs of residential aged care before you accept a permanent aged care placement for a family member.
This is part of a continuing series about Centrelink by Christine Hopper the Director of Financial Care Services, an independent advisor. Financial Care Services is focused on mature people considering a change of lifestyle including retirement and particularly new living arrangements in: retirement lifestyle community villages; granny flats; supported or assisted living, and Commonwealth regulated aged care. She can be contacted through https://financialcareservices.com.au.
Christine talks to Centrelink as a customer and on behalf of clients. She understands the range of Department of Veteran Affairs and Centrelink income support benefits, their relevant means tests and eligibility conditions. She’s an actuary who also holds a Bachelor of Science, a Diploma of Financial Planning and a Certificate of Theology.