How moving into aged care could boost your pension
It makes sense, swapping one accommodation for another, until you factor in the negative impact it can have on your pension and aged care costs.
Your home has special treatment for both pension and aged care means tests. When it comes to your pension, your home is an exempt asset for two years after you move into aged care. Any Refundable Accommodation Deposit (RAD) you pay is also exempt.
So, if you keep your home and pay your RAD from your investments, you can get an exemption on both the value of your home and the RAD – potentially boosting your pension or enabling you to qualify when you didn't qualify before.
Under the aged care means test, your home is only assessed up to a capped value of $206,663. That means if your home is worth $1 million, nearly $800,000 of it is effectively exempt from aged care fee calculations. Finally, while the RAD is an assessable asset for aged care, it is not deemed to earn income like the investments are, so it counts as an asset but not as income.
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Sally has a house worth $1 million, $650,000 of investments and receives an age pension of $4250 a year. The aged care home has a Refundable Accommodation Deposit (RAD) of $500,000.
If Sally keeps her home and pays the RAD from her investments, both the home (for two years) and the RAD are exempt from the pension assets test. As a result, her pension increases to $29,874 per year – a jump of more than $25,000. Her means-tested care fee will be just over $10,000 per year until she reaches the lifetime cap, which would take about eight years.
After the two-year home exemption ends, the property will be counted for the pension, and her pension will be lost, but only the capped value of $206,663 will continue to apply to her aged care fees.
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