Pensioners would emerge winners from aged-care reforms

While the taxpayer aged care levy proposed by the Aged Care Royal Commission is receiving a lot of attention – and rightly so – it is also important to understand how the reforms would affect how much you would still need to pay for residential care should the need arise.

Under the current system, to have your accommodation and care costs paid by the federal government, your assets need to be below $50,500 and your income less than $27,841 a year.

Under the proposed new system, the government would be responsible for your cost of care regardless of your means. However, there would be an asset and income test in line with the age pension cut-off limits, to determine how much you would need to pay towards the cost of your accommodation and ordinary cost of living.

For a single non-homeowner, the asset threshold would rise to $797,500 and the income threshold to $53,732 before they would have to make a contribution.

All aged-care residents would continue to pay the basic daily fee. In short, all pensioners – whether they receive a full age pension or a part-pension – would pay only the basic daily fee of $52.25.

A single non-homeowner who is self-funded but whose assets or income slightly exceed the thresholds – that is their income is above a pensioner but below $61,032 a year, or their assets are above $797,500 but below $844,295 – would still have the cost of their accommodation funded by the government. However, they would need to make a contribution towards their ordinary cost of living: The taper rates used would be the same as for the age pension – 7.8 per cent of assets and 50 per cent of income.

To reach the point of no government support with your accommodation or ordinary cost of living, a single non-homeowner would need to have income of more than $103,394 a year or assessable assets greater than $1.11 million.

Unlike current means-testing arrangements, where your asset-tested amount and income-tested amount are added together, the new proposed means test would, like pension means testing, take the highest of the two tests.

On face value, new means tests appear to make aged care more affordable but a proposed change to the treatment of a former home would mean not everyone is better off.