Nick Bruining Q+A: Should I pay my wife’s aged care RAD fee from superannuation or sell the house?

Question

My wife is 79 and I am 83. With advanced Alzheimer’s, I am her full-time carer, presently assisted at home through an aged-care package.

She will soon need to enter an aged-care facility and that will require payment of a refundable accommodation deposit.

We own our home and have self-managed superannuation fund balances in retirement phase that could fund the RAD.

We could choose to sell the home or use funds from our superannuation — or is there another option? What do you think?

Answer

I appreciate these are difficult times and the financial aspects must often take second place to the needs of you and your wife.

Unless she is ready to move in the next two weeks, you will be subject to the new rules that will apply from November 1.

The most significant change is that the aged-care facility will be able to retain up to 2 per cent a year from the RAD to a maximum of five years. In essence, up to 10 per cent of the RAD would not be returned when she eventually leaves the facility.

In almost all cases, fully funding the RAD, if possible, is still the preferred strategy.

If you sell your family home and use the proceeds, it may limit your choices when the time comes for your possible care needs — as well as increase the immediate costs of her care — because of means testing.

In addition to the RAD, you also need to consider the daily care fees payable. While you haven’t indicated whether or not you receive any Centrelink income support payments at present, the payment of the RAD and retaining your family home may see you qualify for a part or a larger age pension.

This would be the case if, after the RAD payment, total combined assets are less than about $1.27 million, not including the value of your home. This could help to offset the daily care costs which will depend entirely on your financial position.

At the very most, it could cost as much as $64,707 a year if you receive no government support because of means testing.

You can obtain specific information from a specialist aged-care financial planner or by making an appointment with a financial information service officer at Centrelink. The latter is a free service.

Question

Could you please explain how a Commonwealth Superannuation Scheme defined-benefit amount is calculated for aged pension income and asset test purposes?

Answer

The Centrelink treatment of this benefit will depend on what you decide to do with the money and when you make the selection.

If, at the time you become eligible to receive the Centrelink benefit, the entire balance is available for you to withdraw. The full amount will be treated as a financial asset and will be assessed under both the income and asset tests. With the current low deeming rates, the asset test is likely to have the greatest effect.

If you convert all of your CSS benefit into pension funds, there is no asset test on the value transferred. However, 90 per cent of the income generated by the defined benefit pension is included in the income test.

As a single, if this assessable income exceeds $2775.40 a fortnight — or about $66,960 a year — your Centrelink pension would be cancelled. If you are a member of a couple, the combined income would need to be less than $3934 a fortnight — or about $102,284 a year.

These figures would include the CSS income plus other assessable income, including the deemed income on financial assets.

Remember that the asset test will still apply to your other assets, and whichever test produces the lowest Centrelink benefit will be the one used.

If you fail to qualify for a pension, you will probably qualify for a Commonwealth Seniors Health Card. The card is not asset-tested but is subject to a more generous income test of $101,105 for singles and a combined $161,788 for couples.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association