Nick Bruining: Everything you need to know about fees and charges when planning a move into aged care

With mortgage and some bank deposit rates rocketing up across the board, it should come as no surprise that the figure used to calculate aged care accommodation costs is also rising. The percentage used to calculate the Daily Accommodation Payment (DAP) has risen to 7.06 per cent for the March quarter and is expected to go up again when it is set next month for the June quarter. That’s because the rate being used in the current quarter doesn’t include the 0.25 percentage-point increase in the cash rate by the Reserve Bank in February, or a possible further rate rise in March. The calculation rate, called the maximum permissible interest rate, hit an all-time low of 4.01 per cent in June 2021 but is still well short of the 11.75 per cent peak set in 2008. Once set by moving into an aged care facility, the MPIR for an individual is fixed. If interest rates keep rising, those who moved into aged care during the COVID pandemic will probably benefit from a rate which could end up being half the rate for new residents. The confusion triggered by constantly changing rates in aged care is only matched by the glittering array of acronyms used to explain each of the factors that determine how much you end up paying. The DAP is the amount an individual must pay for accommodation when they have elected not to pay some or all of the RAD (Refundable Accommodation Deposit). The daily care costs are in addition to this accommodation figure and are means-tested against income and assets. The RAD is a lump sum contribution that is set by an aged care facility. The maximum permitted amount is currently set at $550,000, but the facility can seek ministerial approval to set an amount above this level. That might apply when the aged care facility is particularly luxurious or set in a location where the cost of land and construction is higher. The lump-sum amount only applies to government-registered facilities which offer 24/7 care, and not to retirement villages. The amount varies and will depend on the type of accommodation provided. That $550,000 figure might apply to a room with an ensuite bathroom while a lower cost room might be based on a bathroom that’s shared with others. If the person has insufficient financial resources to fund a RAD, the Department of Health looks at their total financial position and sets a daily accommodation charge. In this case, they could elect to pay the DAC or use this figure to calculate a refundable accommodation charge. In effect, the RAC is like a lower cost RAD, but reduced to reflect the individual’s financial circumstances. If the resident pays the full amount of the RAD or RAC on entry, no further accommodation costs apply. When the person leaves the facility, usually when they have passed away, the full amount of the RAD or RAC is refunded to the individual or their estate. Both are guaranteed by the Federal Government and are, in effect, interest-free loans to the facility. Interest on the RAD or RAC is only payable if there is a delay in the repayment. If a person elects not to pay all or some of the RAD, the MPIR kicks in to calculate the DAP. The DAC, as explained earlier, is set by the Government. In essence, the RAD amount outstanding is multiplied by the MPIR to give an annual figure. The annual amount is divided by 365 to calculate the daily payment — the DAP. For example, if the facility you select sets a RAD at $500,000 and you decide not to pay any amount, the annual figure is 7.06 per cent times $500,000, which equals $35,300 a year. That translates to a DAP of $96.71 a day. If you decide to pay $400,000 towards the RAD, the DAP will be based on the $100,000 outstanding and your DAP will be $19.34 a day. You could choose to pay this amount separately or elect to have your RAD “eroded” by this amount. Needless to say, the longer the DAP applies using this strategy, the less you or your loved ones will receive when the balance of the RAD is refunded.

Nick Bruining: Everything you need to know about fees and charges when planning a move into aged care

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