Feature: Navigating the costs of a long life


By Daniel Paperny

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Changing retirees’ conservative attitudes remains a hurdle for advisers faced with an increasingly low growth environment to fund their clients’ aged care costs, as the portfolios of Australia’s ageing population must be ready to ride the wave and risks of longevity.

Aged Care Gurus principal Rachel Lane believes the first step to address this is education, as lack of awareness means retirees run the real risk that their investments cannot provide them with adequate income to sustain them as they age.

“There’s a real lack of understanding among retirees that cash and fixed interest investments are not risk-free,” she said.

“That is something they really need to learn, especially in this really low interest rate environment.”

Financial advisers have a critical role to play, Lane adds, because consumers tend to make better educated decisions when they understand how financial markets work and what their likely time horizons are in retirement.

Affinity senior aged care adviser Donald Swanborough agrees, saying the key challenges for advisers now is both addressing how clients can afford services such as aged care facilities, and helping them navigate and understand their options in an increasingly complex aged care system.

Aged Care Steps director Assyat David expects a heightened demand for aged care services from clients over the medium term, and says advisers have a key role in providing a clear roadmap to relieve pressures and uncertainty.

“[We can expect] greater complexity and cost of aged care services, driven by changes in government policies aimed at shifting a greater portion of aged care costs to individual Australians,” she said.

“Advisers can provide valued support to clients and their families during this time by helping them understand the [fees], their financial options for dealing with the upfront deposits … as well as other factors affecting the decision, including estate planning, tax and other considerations.”

Home care packages are one recent aged care reform that give individuals more choice in the services they receive and mean they are not bound to a particular provider, says Mercer financial advice team leader Diane Haggett.

“One of the things the government is looking into is for people to be able to stay in their home longer and look after themselves and get care in the home,” she says.

“It’s creating greater need for those providers to be making sure they’re doing the right thing by clients.”

Lane says another noticeable trend is the growing demand for advice that delivers a holistic spectrum of options for those looking at aged care, including retirement village funding options, residential aged care, home care packages or managing finances to achieve more favourable outcomes under the government’s new aged care regime.

“A lot of advisers are asking themselves: how do I actually engage with a client earlier in their aged care decisions … [because] the client could be in a much better position today but you can’t wind back the clock,” she says.

This is a particular challenge for advisers helping their clients navigate recent changes to pension calculations, including increases to the asset test-free area for single homeowners and non-homeowners, as well as a new taper rate of $3 for every $1000 above the new asset test-free areas.

“Largely when people move into aged care, they don’t just physically downsize, they also financially downsize … this assets test is actually forcing pensioners to use their assets in the same way that younger retirees are forced to use their superannuation,” Lane says.

She adds that the new asset test is “quite detrimental” for retirees, so a growing number may opt for retirement village care over residential aged care as a result.

Lane says more retirees are turning towards retirement villages delivering care because of the more flexible financial arrangements as well as a greater sense of independence.

“It’s the biggest potential change going forward … because at the moment, a key benefit of moving to an aged care facility versus moving to a retirement village is that your capital is guaranteed,” she says.

Meanwhile, the regulatory and political environment around aged care continues to evolve, with Treasury currently working on a new model for evaluating retirement income and assets.

Known as MARIA, the plans for the new framework were announced earlier this month.

The framework is expected to provide detailed information on sustainability issues, such as age pension expenditure and savings held outside super, as well as adequacy issues, such as distributional analysis of super assets and retirement incomes.

The Aged Care Financing Authority is also examining alternative arrangements to the Bond Guarantee Scheme and is due to report its findings to the government on 30 April.

The data is expected to inform the 2016-17 Aged Care Legislated Review and will underline the government’s push to identify emerging opportunities and challenges for the sector as reforms continue to take shape.

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