Paul Dwyer October 12, 2016 No Comments

Aged Care – The Government must be the Protector

The residential aged care industry is shared by three sectors – Government regulating the supply and funding for aged care services, aged care facilities providing care and accommodation, and frail and older Australia looking for the care and respect they deserve.

It’s obviously not shared by the article “The dead hand of Government in aged care reform” in September 12th Australian Financial Review by Julie McStay, who is a Director at Hynes Legal and leader of their national aged care and retirement living team.

If aged care providers were not intent in finding holes in the Living Longer Living Better (LLLB) legislation, reforming accommodation payment regulations, or the intent of the reforms and the legislation, owners would not have found themselves in dispute with Government.

If we go back to the reforms initiated by the previous Labor Government, we saw that a contribution paid by residents (retentions drawn from the Bond) would no longer be available to providers, and instead the Bond became fully refundable(known as the Refundable Accommodation Deposit or RAD). Providers were also given the discretion to set RADs up to $550,000, with higher amounts needing to be approved by the Pricing Commissioner. The industry quickly adapted by increasing the cost of the accommodation, with many RADs moving from around $350,000 to the maximum allowed without requiring Government approval.

Retentions previously gave providers around $4,000 per annum in additional funding, whereas the increase in room pricing of $200,000 amounted to about $12,000 per annum when used to offset debt.

Government was advised 12 months ago about the first of additional fees being charged to residents under the guise of Refurbishment/asset replacement by Japara Aged Care. Unfortunately it failed to realise the potential explosion by other providers, with decisions taken by Regis and Estia earlier this year to follow Japara.

What needs to be made clear is that these providers activated or decided to activate these charges prior to the Budget announcement of a reduction of $1.2b in care funding under the Aged Care Funding Instrument. These increases to residents were not as a result of the Government’s Budget announcement.

Eventually another five for-profit providers took up the same charge upon residents, which led to the Government’s clarification.

The provision of funding to meet the cost of care comes from two sources – Government and the consumer. Perhaps the aged care providers and their member associations should understand that Government is not an unlimited source of funding, and should be arguing for an increase in user contribution by adjusting the calculations and annual/lifetime caps accordingly.

The other fee clarification announcement related to services provided additional to those specified in the Aged Care Act. The intent of LLLB in regard to additional services was to highlight the longstanding provision of the Aged Care Act that providers have the option to charge fees for additional services on the condition that residents agree and have the option to opt in/opt out of receiving the additional services such as newspapers, wine, Foxtel etc.

Prior to July 2014, about 15,000 bed licences allocated to providers were used to charge for “extra services”, and the Government was paid 25% of the charged fee. In order to circumnavigate this, providers handed back their licences and substituted “extra services” with “additional services”, with many new residents unable to opt in/opt out, and paid for services they never received or were capable of using.

Consumer protection is vital. The decision to enter to aged care is often taken within days of a sudden event and the ingoing residents and their families have difficulty in not only understanding rules and regulations of aged care, but also the fundamentals of funding the future needs. Sales staff (admission co-ordinators) are trained to maximise the potential return of each inquiry.

Less than 10% of residents would have a total understanding of the future cost of their care and accommodation, and their families are trying to understand all of the interfacing considerations and decision making within days of potential entry. It is Government’ role to provide the protections for its elderly.

The IPO listing of three companies has been led by hedge funds and private equity investors. All are looking for a return on capital greater than other participants, with those returns being sought over a short timeframe and not as a long term investment.

Investment strategy seeking growth and profitability can often run into liquidity problems, with some companies unable to meet payments when required. Government has grave concerns over the potential of any provider not been able to repay Refundable Accommodation Deposits, as it provides a Guarantee for the return to the resident’s estate if such an event occurred.

No other industry receives interest free lump sum payments from clients to assist with the cost of running the business. The Roadmap clearly indicates there will be consideration towards the removal of the Government Guarantee on the repayment of the lump sum to the resident or their estate. It is becoming clearer that Daily Accommodation Payments may be the only option.

The cost of accommodation and care must be jointly shared by Government and residents, with user contributions increasing overtime. But it is the Government who must provide the parameters, for the protection of the frail and elderly whose decision to enter care is often taken under duress of leaving home or hospital and knowing they will never return.

Paul Dwyer is a Credit Adviser in aged care lending.

Marguerite Taylor September 27, 2016 No Comments

300,000 Pensioners need alternative income for retirement

As reported recently, from January 2017, around 300,000 Australian pensioners will need an alternative source of retirement income as they will be affected by the new ruling in age pension asset test. In less than six months, many will receive a lower pension and some will lose their pension completely. What’s even more concerning? Most of people are unaware of this radical looming change.

Australians, who are aged 65 and above, are entitled to receive part or full pension. Their age pension entitlements are based on their income and asset test. The new rules on age pension asset test were recently legislated and would take effect in January 2017.

People who are nearing retirement or are currently receiving pension entitlements should check their assets ahead of time before the changes take effect. Almost 100,000 of Australian pensioners will lose their entitlements if they don’t act now.

The new asset test ruling allows full pensioner homeowners to own assets up to $250,000 if they are single and up to $375,000 for couples. On the other hand, if you a full pensioner and don’t own a home, you can own assets up to $450,000 if you are single and up to $575,000 for couples if you don’t want your entitlements to be affected.

For part pensioner homeowners, they can own assets up to $547,000 if they are single and up to $823,000 for couples. Part pensioners who don’t own a house can own assets up to $747,000 if they are single and up to $1 million for couples to still be eligible for age pension.

Because of the new asset test ruling, 50,000 of Australians are expected to be better off and receive a full pension. However, around 91,000 of part pensioners will lose their entitlements completely and more than 235,000 will have their entitlements reduced because of the new age pension asset test.

Those who will lose their entitlements can either apply for a Commonwealth senior’s health card or a low-income health card. But we all know that these cards won’t be enough. These cards can only help with medical and pharmaceutical expenses.

If you think you’re one of those who will be affected, consult your financial adviser and plan strategies ahead of time. If you’ve been longing to make renovations, upgrade your vehicle, or take a vacation, it’s feasible you may have more incentive to do that now. Your family home is exempt from the Centrelink means testing so effectively, any money put into it will not be assessed.

However, if you’re going to lose your pension completely, there are other ways to supplement lost income. One is accessing the equity in your home through a Reverse Mortgage. The funds can be accessed as a lump sum, a regular income stream, a line of credit, or a combination of these options. A Reverse Mortgage can effectively fund your needs so you can live a comfortable lifestyle in your retirement years, with or without pension.

Regards, Marguerite


Marguerite Taylor September 14, 2016 1 Comment

Reverse Mortgage demand to surge among seniors

According to recent industry data, Australian banks and lenders can expect a surge in demand for Reverse Mortgage products in the years to come. As Australia’s ageing population comes into full bloom, it is predicted asset rich but cash poor ‘baby boomers’ will increasingly turn to home equity release mortgage products to fund a comfortable retirement.

Indeed, the Mortgage and Finance Association of Australia (MFAA) is already asking brokers to get prepared for the next decade. In 2014 alone, there were about 40,000 reverse mortgages worth $3.6 billion according to the Deloitte’s Reverse Mortgage Survey. This was a significant increase from approximately 16,000 reverse mortgages worth $750 million in 2005.

Over the past ten years the Deloitte’s survey results have shown a mostly steady upward trend in the number of Reverse Mortgage on issue in Australia. According to MFAA, we can expect a more dramatic surge in Reverse Mortgages over the coming decade as the volume of application and settlements speeds up to meet growing demand.

Aside from the demographic ‘push factors’ of a large cohort of ageing baby boomers facing a retirement savings shortfall, other ‘pull factors’ will also play a role in further driving the trend upwards. These include falling interest rates, the rising cost of living, and the likelihood of future cuts by government to the real level of aged pension income.

The perception of reverse mortgages by consumers has improved in recent years due to government regulation under the National Consumer Credit Protection Code (NCCP) making Reverse Mortgages the most regulated mortgage in Australia. Indeed regulation and industry bodies such as MFAA and FBAA (Finance Brokers Association of Australia) may have a more dynamic role to play in future; as more sophisticated equity release products are developed further efforts in market education and industry accreditation will likely be required.

Looking at the big picture for the moment, it’s not hard to see why Reverse Mortgages are now becoming more popular with Australian retirees:

  • it can improve cash flow in retirement (no regular repayment is required)
  • seniors can get quick access to cash for medical expenses or aged care
  • no need for minimum income to qualify
  • the borrower remains the registered home owner
  • able to pay bills without stress
  • peace of mind in retirement

If you would like to discuss how a reverse mortgage can help you, please give Reverse Mortgage Finance Solutions a call.