Home' Australian Ageing Agenda : AAA Spt-Oct 2014 Contents Paul Dwyer
The benefits that consumers can gain from using a home
equity release product to fund their residential aged
care should console aged care providers concerned
over losing lump sum bonds to daily accommodation
payments, according to an aged care credit advisor.
Paul Dwyer from Aged Care Finance Solutions says that
following the 1 July aged care reforms people using their home
to pay for their aged care accommodation now need to decide
whether they sell or use the equity in the home's value.
One of the more significant changes is that the proceeds from
the sale of the property, including any lump sum RAD payment
[refundable accommodation deposit] and cash in the bank, will be
included in the means test, he says.
"For those wanting to achieve the best financial outcome for
the resident and the future estate, keeping the home and renting
it will provide potentially better results," Dwyer says.
"The best outcome for both the facility and the resident is a
loan to fund the majority of the RAD, which thereby leads to a
small DAP [daily accommodation payment].
"The facility will continue to have significant RAD funds,
whilst the residents will be able to receive rental income without
affecting aged pension entitlements nor its inclusion into a
The age pension will not be reduced because the rental
income and the house are exempt from the income test and for
the means test, the value of the house is capped at $154,000.
Dwyer says the number of bonded beds will nearly double
over three years following the 1 July removal of the distinction
between high and low care. Although some of those bonds would
be replaced by DAPs, estimates indicate it would only be between
20 and 30 per cent, he says.
EQUITY RELEASE SCHEMES FOR SENIORS
While many stakeholders continue to call for a government-backed
equity release scheme as recommended by the Productivity
With both major political
parties agreeing that home
equity release schemes
are best left to the private
financial services sector to
operate, Natasha Egan
looks at the products
Commission, but not implemented by the former Labor
government, Assistant Minister for Social Services Mitch Fifield
confirmed to Australian Ageing Agenda (July-Aug issue) that it
was not something the Coalition Government was examining either.
Both major parties agree the private financial services sector
should operate such schemes. There are products currently
available in the Australian market suitable for seniors to access
the equity in their home but a majority do not provide its
continuation when the house is unoccupied, Mr Dwyer says.
Senior Australians Equity Release Association (SEQUAL) is a
peak industry body aiming to ensure high standards among those
who offer equity release products for senior Australians.
SEQUAL chair John Thomas says that while current equity release
options are limited for funding residential aged care, he believes
more products will come onto the market to adapt to new needs.
"The aged care funding changes are only hitting the deck now
and obviously providers will develop products that meet that
need. I think there will be a lot more providers and a lot more
products tailored to specific needs," Thomas says.
Now and in the future, Thomas says he recommends seniors
use a product from SEQUAL-accredited-members to be assured
it meets legislative and regulatory requirements.
Key principles include a guarantee for the homeowner to
live in the home for as long as they want, a no negative equity
guarantee, which means if borrowings exceed the value of
the house, the homeowner/s or estate never have to pay more
than the net sale proceeds of the house, and quotations with a
calculator showing how the interest accumulates over years.
EQUITY RELEASE OPTIONS FOR
SEQUAL accredited providers include Macquarie Group,
Australian Seniors Finance, Homesafe Solutions and Bankwest,
all of which offer a product that can be used to fund residential
aged care in certain circumstances. Another two, P&N Bank
38 | SEPTEMBER -- OCTOBER 2014 | AAA
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