From the archive — a Noel Whittaker piece we hadn't covered yet, and one that matters more now the deeming rates have moved.
If you have ever helped a parent move into care, you will know the fees are bewildering. What catches most families out is that the biggest ones — the income-tested fee for home care, the means-tested fee in residential care — are not based on what your investments actually earn. They are based on what the government deems them to earn.
Noel Whittaker's point is that this one piece of plumbing can quietly cost a family thousands of dollars a year. Deeming applies a set rate to your financial assets regardless of what those assets really pay you — a term deposit at a decent rate and cash sitting in an account earning almost nothing are treated the same way. So when the government lifts the deeming rates, deemed income rises for everyone with savings, and aged care fees rise with it, even though nobody's actual income has changed.
He works through two examples. A man receiving home care with substantial investments sees his deemed income jump by $15,000, and his daily fee go from $20 to the maximum of $37.70. A woman in residential care with $1.4 million in financial assets pays roughly $1,600 more a year. Neither of them earned an extra dollar.
There are two lessons here if you are in your 40s or 50s. When you sit down to work out what your parents' care might cost — or your own, decades from now — use deemed income rather than the return you expect to earn. And recognise that how money is held matters, because deeming does not treat every structure the same. Far better to understand that before the decision becomes urgent.
"A small rise in deeming rates may sound minor, but for older Australians in aged care, it can mean thousands more in fees."
Read the full article: It's not just pensions: How deeming quietly drives up aged care fees — Noel Whittaker, YourLifeChoices.
Deeming, the age pension tests and aged care fees all pull on the same levers, and understanding them early makes the later decisions far less frightening. Retirement Made Simple (6th Edition) walks through how retirement income is assessed, what Centrelink counts and how to plan around it — $19.95, buy direct from the author, in PDF and EPUB.