Selling the family home is not the only way to pay for aged care, and it can sometimes be a costly mistake. Retaining your home may preserve capital and provide different exemptions under Age Pension and aged care rules. Understanding these complex rules before making a decision is crucial to managing your finances effectively.
Key Takeaways
- Your family home is generally exempt from the Age Pension assets test for up to two years after moving into aged care.
- The home may remain exempt from aged care rules if a protected person, such as a carer or close relative, continues to live there.
- The family home is only assessed up to a capped amount for the aged care means test, not its full value.
- Selling your home exposes the proceeds to aged care means testing, whereas keeping it can protect a substantial portion of its value.
- New Refundable Accommodation Deposit (RAD) exit fees mean providers can retain up to 10 per cent of your RAD if you remain in care for 5 years or more.
Moving into residential aged care is a major life transition, and while the focus is often on finding the right accommodation and care, it is also important to understand how the move can affect your Age Pension.
Many people assume that entering aged care will automatically reduce their pension because they now have an asset they didn’t have before (their home) or because they are paying a large amount for their care. The reality is more complex. The way your assets are assessed can change significantly depending on whether you keep or sell your home, how you pay for your accommodation, and whether you are single or part of a couple.
How Does a RAD Affect Your Age Pension?
One of the most important things to understand is the treatment of the Refundable Accommodation Deposit (RAD).
A RAD is the lump sum payment you can make towards your accommodation. For Age Pension purposes, a RAD is an exempt asset. This means that the amount you pay as a RAD is not counted as an asset for pension purposes. If you are using assets that are assessable to pay your RAD, such as money in the bank, then paying the RAD can actually see your pension increase.
If you are using an exempt asset, such as your home, to pay the RAD, then the outcome will be the same. However, any money left over will normally be assessable. For example, if you sell your home for $1 million and use $700,000 to pay a RAD, that $700,000 is not assessed as an asset for the pension, but the remaining $300,000 will be. That $300,000 can make a significant difference to your pension. If your pension is being reduced under the asset test, that $300,000 can mean $23,400 less pension per year, if you are already close to the Age Pension cut off limit it may push you over.
What Happens to the Family Home?
The family home is another major consideration.
When you move into aged care, your former home will normally continue to be exempt from the assets test for up to two years from the date you enter. This gives you and your family time to make decisions about whether to sell the property, rent it out, or retain it. If your spouse lives there, the home will be exempt for as long as they live there and for 2 years after they leave.
During the 2-year asset test exemption period, the home can still be treated differently under the income test if it is rented. The rental income can affect the pension even though the property itself is exempt from the assets test.
After the two-year exemption period ends, you will be classified as a non-homeowner for pension purposes, and the home will be included in your assessable income assets.
How Are Couples Assessed for the Age Pension?
For couples, a move into aged care by one or both will change how their pension is assessed.
You will generally be treated as a illness separated couple for Age Pension purposes. Which means that while you are still assessed as a couple, the maximum rate of pension you can each receive is equal to the single rate. This applies even when both members of a couple move into aged care, even if they move into the same room in the same facility.
What Else Should You Consider Beyond the Age Pension?
The family home, the RAD and the way accommodation is funded all play an important role in aged care finance planning. The Age Pension is often a cornerstone of the decision-making process, but it is not the only consideration.
You also need to think about how your aged care means test will be affected, your ongoing cash flow, potential tax consequences and your estate planning goals. You can also use the My Aged Care fee estimator to get a clearer idea of how your pension, income and assets may affect your aged care costs. A decision that improves your pension position may not always be the best overall financial outcome.
Before making decisions about selling the family’s home or paying a RAD, it is worth understanding the broader financial picture. Moving into aged care is a financial decision that can affect your income and assets for years to come.
Need help finding an aged care home?
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FAQs
Will moving into aged care automatically reduce my pension?
No, moving into aged care does not automatically reduce your pension. The outcome depends on how you fund your accommodation, whether you keep or sell your home, and your relationship status.
Is a Refundable Accommodation Deposit counted as an asset for the pension?
No, a RAD is treated as an exempt asset for Age Pension purposes. Paying a RAD with assessable money, such as bank savings, can sometimes increase your pension rather than reduce it.
How long is the family home exempt from the assets test after moving into aged care?
Your former home is normally exempt from the assets test for up to two years from the date you enter into aged care. If your spouse continues living there, the exemption lasts as long as they remain, plus two years after they leave.
How are couples assessed for the pension when one or both move into aged care?
Couples are generally treated as an illness separated couple for Age Pension purposes. This means you are still assessed as a couple, but each person can receive up to the single pension rate.
What happens to rental income from my home during the exemption period?
Rental income can still affect your pension under the income test even while the home remains exempt from the assets test. This is worth factoring in before deciding to rent out the property.
The information contained in this article is intended as general information only and does not constitute personal financial advice, legal advice or professional advice. While care has been taken to ensure the information is accurate and up to date at the time of publication, rules, rates and circumstances can change.
The information provided may not be suitable for your individual circumstances. Before making any decisions about financial matters you should seek advice from an appropriately qualified professional who can consider your personal situation.
