Tag: aged care bond

How do aged care bonds work?

What is an aged care bond?

When an elderly person enters into an aged care residential facility (ACRF) they may be asked to pay an aged care bond or Accommodation Payment.  This is sometimes also called a RAD, which is short for Refundable Accommodation Deposit.  It is colloquially called a bond.  The amount the resident pays depends on the ACRF; the price is set by the ACRF and is usually a function of the location, the room size and type and the state of the ACRF.  Think of a bond as the capital cost of entry into aged care – like paying for a house. In addition to paying a bond, the resident will also have to pay daily costs of living and care.  To find out more about those daily costs of living, see our earlier articles.

Also you will need to know about placement, so go and read our post “What is aged care placement?

If a resident has very few assets, they may not be required to pay a bond.  Our most recent article explains more about that.

When and how does an aged care bond have to be paid?

The resident does not have to have ready cash to pay the Accommodation Payment on the day they move into care.   Read on to understand what happens if they do not have the ready cash.

The Accommodation Payment can be paid wholly or partly in cash.  The amount that is paid in cash is called a RAD.  The ACRF gets to keep the income from the RAD whilst it holds the RAD.

Interest is payable on any amount of the Accommodation Payment that is not paid as cash from the date the resident moves in permanently usually at the rate fixed by the Government. At the moment that rate is 5.76% per annum.  That rate is reviewed every quarter.  The amount paid as interest is called a Daily Accommodation Payment (DAP) and is calculated by multiplying the outstanding amount of the Accommodation Payment by the current interest rate and dividing by 365 (or 366 in a leap year).

Selling Your Home To Pay The Full RAD

Quite often, a resident will move into care without having the ready cash and needs to sell the home to pay the full RAD.  They might have a bit of cash to contribute to a RAD whilst the home is being sold.  In that case, the resident would pay interest on the outstanding amount until the sale of his home settles and he can pay the balance of the Accommodation Payment as a RAD.

Here is an example.  George has moved into an ACRF and has agreed an Accommodation Payment of $500,000 for his room.  He has $200,000 in available cash but needs to sell his house to pay the whole of the Accommodation Payment as a RAD.  He decides to pay $150,000 as a RAD straight away so he can keep some money to pay other expenses such as getting the home ready for sale and selling the home.  So, until he receives the money from the sale of his home, he will pay $55.08 per day DAP ($350,000 x 5.76% /366).  Once the sale of his home settles and he receives the proceeds, he will pay the remaining $350,000 as a RAD, and he will not have to pay any more DAP.

Finally, the resident has 28 days after moving in to decide how he or she wishes to pay the Accommodation Payment.  Once a decision is made on how the resident would like to pay the Accommodation Payment, he or she then has 6 months to pay the agreed RAD.  The RAD can be topped up to the full amount of the Accommodation Payment at any time, even outside that 6 months.

Is the bond guaranteed?

Yes the RAD paid to an ACRF is guaranteed by the Federal Government and, in most cases, the resident or his estate will receive the whole amount back.  The amounts that are deducted are unpaid fees and charges and, in some cases, ACRF’s charge a refurbishment fee which they deduct from the RAD.  Make sure that the facility you are paying a RAD to is an ACRF.  There have been instances where a facility has taken a bond but that facility is not an ACRF which means that the bond is not guaranteed. You can check on the myagedcare website or ask the facility if you can see its certificate stating that it is an ACRF.

What does the ACRF do with the bond?

Under the relevant legislation, the ACRF is only allowed to use the RAD for limited purposes, including capital expenditure,  or invest the RAD in approved investments. The ACRF must comply with mandated prudential standards when investing RADs.  The ACRF keeps the income earned on those investments.  A resident is entitled to receive information from the ACRF about its RADs, including copies of the audited accounts on request.

When does the bond get returned?

The RAD is returned within 14 days of:

  1. the resident leaving the ACRF; or
  2. if the resident has passed away, a copy of probate being provided to the ACRF.  In very few cases, usually only if the RAD is relatively small, the ACRF may not require probate.  Probate can take quite a while to obtain and the ACRF will continue to keep the income on that RAD in the meantime.

If the ACRF does not meet these timeframes, it has to pay interest to the resident or his or her estate on the amount of the RAD at the rate fixed by the Government.  That rate is currently 3.75% per annum and is reviewed quarterly.

If you require further information or need assistance, contact us on 1800 744 676 or at info@signpostlms.com.au.

Until next time

Sara and Margaret

How to negotiate aged care costs

Negotiating aged care costs

Did you know that some aged care costs, particularly the Accommodation Payment (or bond or RAD as it is commonly known) are negotiable?  The price quoted by the aged care facility is often the maximum amount that the facility can charge.  If you want find out what that maximum amount is, the price is listed on the myagedcare.gov.au website.  Once you know that price, you can negotiate with the facility to see if they will accept less than the listed price.


residential aged care

Unhappy about aged care costs? Negotiate them.

Aged Care Housing Options Vary

A facility’s willingness to negotiate is often a function of supply and demand.   If the facility has a long waiting list of people who are willing to pay the asking price, they may not negotiate on the price.  But if the facility has a number of beds available, they are usually more willing to accept a lower price.  Negotiating is just a matter of asking the simple question ‘Are you willing to negotiate the Accommodation Payment?’ (or RAD as it is often called).

Sometimes, facilities also charge an additional service fee which can range from $5 a day to more than $100 per day.  These additional services often include things like daily newspapers, wine with meals, a choice of meals or podiatry or hairdressing services.  Facilities may also be willing to negotiate those additional services.  Again, it is just a question of asking. Then again there are all the different aged care housing options to consider.

Supported beds for those who cannot afford aged care

If you think you cannot afford aged care, you may be entitled to a ‘supported’ bed. In this case, the government pays a contribution towards the Accommodation cost. This often occurs when a spouse will be remaining in the marital home and the couple’s assets combined are less than about $300,000.   It is worth checking whether you are eligible for a supported bed before you start looking at aged care.  Whilst it does not mean you won’t be able to move into a fabulous facility, it is it a little harder to find a supported bed.

Negotiating home care packages

Home care provided under a federally funded aged care package (known as a Home Care Package) is also negotiable – both on price and the services that you receive. Whilst many people just engage the provider who first makes contact with the person receiving the package (or their loved one), it is worth shopping around for the best deal. The list of providers in your area is published on myagedcare.gov.au under the ‘Find a Service’ tab.

It is always worth obtaining financial advice from an aged care specialist financial adviser about the costs of aged care. If you need any help understanding or negotiating the costs of aged care, call 1800 744 676 and speak to one of our consultants.  You can also read our earlier articles which explain aged care costs simply here:

  1. Aged care fees;
  2. Extra service fees and additional services fees in aged care explained.

Until next time

Sara and Margaret

Aged Care fees and charges explained simply.

Since the Living Longer Living Better changes to aged care fees and charges came into effect on 1 July 2014, the costs of aged care have become very complicated and confusing. It is easy to find information about the costs of residential aged care by just doing a google search or going on to the myagedcare.gov.au website. To save you that trouble, in summary, there are 4 components to the costs and those components are:

1. daily care fees which every resident pays. These are pegged at 85% of the full aged pension, currently $47.86 per day and revised every March and September;
2. means tested care fee which, as the name suggests, are calculated using a very complicated formula on the resident’s income and assets. The formula is not only complicated because of the convoluted definitions of the various elements of the formula but also because of the rules around what is included and excluded from each of the elements of the formula;
3. extra services or additional services fees which some facilities (but not all facilities) charge. These fees have no bearing on the care provided; they are just extra services such as wine with meals or podiatry or other items that can usually be purchased independently of the facility. If you are considering a facility with these charges, you should ask what the resident gets for those charges and work out whether you think it is worth the cost;
4. Accommodation Payment (what used to be called the bond). This can be paid to the facility in whole or in part as either cash which is called a Refundable Accommodation Deposit (RAD) or as a Daily Accommodation Payment (DAP). The DAP is calculated as an interest payment on the amount of Accommodation Payment that is not paid as a RAD. The interest rate is fixed by the Government, currently 6.14% per annum, and paid on any part of the Accommodation Payment that is not paid as a RAD for each day in care. The RAD is guaranteed by the federal government and refunded when the resident leaves the facility.
You pay some or all of these charges, depending on the resident’s means and whether the facility charges extra services or additional services fees. The aged care residential facility, in conjunction with Centrelink, will work out the payments for you if you want them to or if you do not take control. Residents will most likely but not always need to complete the Centrelink assessment form and aged care residential facilities now often hand them out during a tour of the facility and want them filled out before the resident is admitted. However, it is not their job to optimise these costs. There are numerous ways to ensure that you are not paying more than you should for aged care and every situation is different. It is nigh impossible to work out how to do it unless you are a aged care specialist financial adviser. Pensions can be affected by the way that aged care is funded and paid for and the way the resident organises the funding of aged care can be to the financial detriment of the resident. We commonly recommend to our clients that they seek advice from a financial adviser who specialises in aged care. Nearly all of our clients who have been referred to an appropriate adviser have in some way redeemed the cost of the session from the advice they have received.

So, if you do not already have a financial planner, given the current bad press around financial planning, how do you choose the right one? As aged care is seen as a growing source of revenue, a lot of planners will tell you they have the requisite knowledge when they do not. Here are some tips (although not foolproof):

– you can google ‘aged care financial advice’;
– screen the results for those who, on their website, focus on financial planning for aged care;
– ring around those firms and find out the cost of the advice. The cost varies from around $500 to over $3,000. Cost does not indicate quality. The cost is generally a function of the manner in which they deliver the advice; and
– choose one that charges a fixed fee for that advice.
Or you can call us to help you select the right financial planner.

Until next time.

Sara and Margaret