On 1 April – this Saturday – the aged care interest rate will rise for a sixth consecutive month, to 7.46 per cent. As much as those who will be affected by this increase would like to believe that’s an April Fool’s Day joke, it unfortunately is not.
In the current climate of rising prices and monthly rate hikes from the Reserve Bank of Australia, it’s hardly surprising that the aged care interest rate is not immune. But knowledge of an impending increase doesn’t necessarily make it easier to cope.
The impact of the increase over the past six months is not insignificant. Compare the new rate of 7.46 per cent to that of just six months prior. The rate on 1 October was 4.01 per cent. Those may be just numbers to some, so an examination of what that means in dollar terms for those paying for an aged care bed is probably in order.
What is the aged care interest rate?
Officially known as the Maximum Permissible Interest Rate (MPIR), the aged care interest rate is a government-set interest rate used to calculate a daily accommodation payment based on the agreed room price of your aged care accommodation.
When you first agree on a price with your aged care accommodation provider, you have three options as to how you can pay: a lump sum amount, a daily amount, or a combination of the two. The balance of a lump is refunded when you leave the aged care home, but daily contributions are non-refundable.
The MPIR comes into effect for those who pay a daily accommodation contribution, based on an amount equivalent to the lump sum you would have paid (known as the Refundable Accommodation Deposit, or RAD).
An example of this shows the clear impact of the MPIR rises over the past six months. If the agreed RAD on your room is $400,000 and no deposit is paid, then, based on the new interest rate of 7.06 per cent, you will pay $77.37 as a daily accommodation payment (DAP).
This is calculated as follows: (400,000 x 7.06%)/365 = $77.37.
Plugging in the rate from 1 October last year, 4.01 per cent, gives us a starkly different amount: (400,000 x 4.01%)/365 = $43.95.
For someone whose finances are tight, a jump from around $44 to $77 a day to represents a hefty increase. For a RAD of $550,000 the amount will have risen from around $60 per day in October to $112 per day from 1 April.
It’s important to note that these rate changes only apply to those who move into aged care on or after 1 April, as well as some existing residents who choose to either move rooms or to another home.
So the big impact is on those planning a transition to an aged car facility. The daily cost that would have applied had you or your loved one moved in last October is vastly lower than what you will pay if moving in next month.
The transition to an aged care facility is fraught in many ways – emotional, practical and financial. The last of that trio is arguably at least as important as the others, so if you or a loved one are about to undergo such a transition, advice from a registered financial planner is likely to be very useful.
Are you or a family member about to make the move to residential aged care? How does the rate rise affect your planning? Why not share your thoughts in the comments section below?
