The aged care reforms due to come into effect on 1 July 2014 will see retirees paying more for their admission to, and ongoing care in, aged care facilities. The bottom line is that the cost of aged care will increase, particularly for part-pensioners and self-funded retirees.
The aged care considerations for SMSF trustees are similar to those faced by retirees who hold superannuation via a platform or directly with a fund. Once a person reaches age pension age, the value of their superannuation counts as an asset for both aged care and age pension purposes. How it is assessed depends on whether the funds are in accumulation or pension phase.
How much they will pay will depend on their asset and income levels, whether they remain homeowners once in care, and how much they pay for the cost of accommodation (called the Accommodation Payment).
Accommodation Payments will be structured slightly differently from the current system, which will mean most people will pay more for the right to reside in care. Asset and income levels will determine how much they need to additionally contribute towards their daily care payments in the form of the means-tested fee.
The current system of accommodation bonds will be replaced by refundable accommodation deposits (RADs). Period payments will be replaced by daily accommodation payments (DAPs).
The biggest change is that a resident’s co-contribution will be assessed based both on assets and income rather than the under the current system of income only. As a result, no one situation is going to be straightforward or simple.
The amount of RAD a person pays counts in the means-tested fee calculation. The means-tested fee will impact significantly on a person’s cash flow resulting in the resident having to fund many out-of-pocket expenses, such as medications, from income earned on their investments, if there is any left over, or more likely by drawing down on capital.
One aspect that will impact SMSF trustees is that traditionally SMSFs do not need to generate Centrelink Schedules when funds are in pension phase. However, the Centrelink Schedule identifies the value of the asset as at 1 July of that year, the relevant number and therefore the deductible amount.
This is an important document for someone moving into care since any income over the deductible amount counts as income for co-contribution (currently the Income Tested Fee) purposes and needs to be declared. If a person moves into care after June 30, the co-contribution (the new Means-Tested Fee) will be based both on the asset value and the assessable income.
Therefore, trustees of an SMSF will need to generate Centrelink schedules to provide correct information to Centrelink for accurate age care fee calculations and age pension payments, where applicable.
Aged care considerations are an issue for all retirees and their families, but there are some additional considerations that SMSF trustees need to consider.
When establishing an SMSF, the aged care needs of members, and trustees, in the future need to be considered. If, for instance, there are only two members of the fund - a husband and a wife - and they are both trustees, the trust deed needs to be explicit about how it deals with one of the trustees' losing capacity.
SMSF trustees are responsible for the investment strategy of the fund, and for ensuring their trustee responsibilities are carried out in a manner that ensures the SMSF remains compliant. But as trustees age, it is possible that they may lose their capacity to make decisions or be less able to make the types of decision required.
Anna Lawton, senior manager, aged care services at Equity Trustees Limited.