Commenting on the release late last week of the issues paper from the Aged and Community Care Providers Association (ACCPA) which recommended super savings be set aside for aged care and withdrawn as a lump sum to pay for residential accommodation, SMSFA CEO Peter Burgess said “we don’t support measures which reduce the control and flexibility people have to save for retirement or how retirees choose to spend their retirement savings”.
“Reading the issues paper together with the Minister’s [Stephen Jones’s] statements, one option that is clearly on the table is using the tax system to encourage people to spend some of their retirement savings on aged care rather than not spending it and passing it to their beneficiaries,” he said.
“This could play out in a number of different ways. Ring-fencing is likely to be complex and costly to implement.”
The paper, Financial Sustainability Summit Issues, came after 43 organisations representing consumers, providers, unions, experts and government met in early June to “discuss long-term policy solutions”.
The paper offers three solutions to long-term sustainability for the aged care sector:
- Higher taxation or a greater proportion of existing taxation
- Introduction of a superannuation levy
- Introduction of a new social insurance scheme similar to the National Disability Insurance Scheme.
CEO of ACCPA, Tom Symondson, said the federal government needs to make changes to the tax system and the funding system, which could include “ring fencing” superannuation to pay for some services.
“We want to see a system that encourages use of superannuation as it was intended,’” he said.
“An alternative could be a compulsory saving approach for which a proportion of superannuation guarantee contributions is ring-fenced to pay for aged care costs.
“The aged care sector does not have a bright future unless funding reforms are made promptly.”
Assistant Treasurer Stephen Jones said this is a “conversation we’ve got to have”.
“The purpose of superannuation is to provide for retirement income and of course those last stages in a person’s life have got to be taken into account in this,” he told ABC Radio.
“It strikes me as odd in a system which is about retirement income that a third of the cheques that are being written by superannuation funds by value, so a third of the value of cheques that superannuation funds are writing at the moment, are bequests.
“Now there will always be bequests in a superannuation system. But it’s not the purpose of superannuation to have a tax-preferred estate planning mechanism.
“It’s about providing for people at the end stages and in their retirement. We’ve got a crisis of funding in aged care and at the same time we’ve got one‑third of the value of superannuation funds being written out in bequests.
“My colleagues Anika Wells and Jim Chalmers are looking at a range of options but I don’t think we can carve superannuation out of that.”
Nowhere in the 3 options proposed was any talk of “ring-fencing” the family home. It would seem, the value of the home that is able to be applied to the aged care means test, needs to be much higher to encourage individuals that have a property, that they will never again live in, and will become an estate asset, to use the equity to fund aged care costs. Super seems to be the go-to whenever there needs to be a solution to a funding shortfall. However, unlike the home, super can be used to live in, that is the nature of it. The home on the other hand is an expense and ultimately becomes an estate asset (which seems to be a constant argument for why super needs to be utilised).
The fact is, moving to residential aged care is a permanent change of accommodation. Where else do you get to choose to keep one property if you move to another, in the absence of sufficient capital to make the move?
The emotional wrench is something that needs to be factored in and the assessment system should allow a transition period of grace for the aged person and their family to adjust to the unavoidable (and often sudden) new circumstances. This however shouldn’t be used as the argument for a permanent hands-off approach to the family home.