Why it’s time to lean on super to pay for better aged care

Australian retirees with super balances are being pushed to use it for better aged care — not hoard it for their kids.

SENIOR/PENSIONER/MATURE/ELDERLY/OVER 65/GRANDPARENT/RETIREE/SUPERANNUATION. Picture: istock Senior couple talk over video call with family in the comfort of their home

How do you see the last years of your life? Those tricky years when body and mind no longer behave as they once did, and you reach the point where you can’t navigate the day on your own.

The garden becomes too much. Or cleaning the house. You may no longer drive, so buying groceries and getting to the chemist is trickier. Your social life relies on people visiting you. Stairs become a problem, or getting in and out of the shower safely. There may be a dementia diagnosis. If you are an older couple, one may have to take on a role of carer. If you’re on your own, it’s a harder row to hoe.

Tough decisions have to be made. Do you have family to look after you? Do they want to, or have capacity to? What help are you entitled to from the government? Can you manage to stay in your own home until you die, the overwhelming preference of Australians? And if you do need a nursing home, how do you know you’ll be safe and properly looked after?

It is an uncomfortable space. Few like to admit their own frailty. They put off hard calls. Navigating the aged-care system to work out your eligibility and entitlements is complex and confusing for anyone, let alone people getting on in age. Too often the move into a nursing home is rushed, coming after a fall and a stint in hospital, after which returning home is no longer a realistic option.

Aged care, in focus again this week, is as much an emotional issue for millions of Australians as it is complex public policy for governments. Like it or not, everyone is affected. You may be asking yourself these difficult questions, or it may be your parents. Or you on behalf of your parents. Younger people have no less skin in the game – it’s the taxes of those still working that pay the nation’s multi-billion-dollar aged care bill.

Show me the money

On Tuesday the Albanese government released the final report of its aged-care taskforce.

Aged-Care Minister Anika Wells pulled a group of industry experts together in June last year to answer a critical question left hanging by the Royal Commission into Aged Care Quality and Safety in 2021: how to get enough money into the sector to supply the type of care older people want and deserve, at home or in a nursing home.

Aged Care Minister Anika Wells. Supplied

The taskforce notes there has been significant new money flowing into the sector that has improved quality in the three years since the royal commission, notably pay increases to hundreds of thousands of personal care workers and nurses, and boosting minimum care minutes and 24/7 nursing care in residential aged care.

But it accepts as baseline that “the aged care sector is currently not in a financial position to meet expected demand, deliver on the required quality improvements or invest to meet Australia’s future aged-care needs”. Given there are about one million people receiving support from the government for in-home care and another 200,000 nursing home residents, this is a serious concern.

“Australia’s aged care system is under stress,” Wells, the taskforce chairwoman, said this week. “There is universal acceptance that something must change in order to ensure all Australians can age with the dignity, safety and high-quality care they deserve.”

Peak aged-care provider advocacy group Aged and Community Care Providers Association chief executive Tom Symondson, a taskforce member, says half the nation’s nursing home providers are operating at a loss, losing money on every resident.

And the viability of home-care providers is trending down, with most barely keeping their heads above water.

“Chronic underfunding of aged care goes back decades and has made the sector unsustainable,” Symondson says. “Aged care in Australia cannot continue to muddle along with Band-Aid solutions while the system crumbles.”

If the sector is in financial strife now, consider the next few decades. The number of Australians aged over 80 is expected to triple to more than 3.5 million across the next 40 years, and a decent chunk of it won’t be pretty.

The Australian Institute of Health and Welfare’s Burden of Disease Study in 2022 found Australian males born that year can expect to live to 81.2 years, but with almost 10 years of it in ill-health. For females the life expectancy is 85.3 but with 11.3 years in ill-health.

“Living longer often comes with greater frailty and more complex care needs late in life,” the taskforce report says. “This means demand for aged care is increasing and the type of services required are changing.”

It recognises consumer preferences are changing, too. Gone are the days of settling for a spot in a multi-bed room in a nursing home. Baby boomers have enjoyed comfortable lives and want to continue to do so to the end, preferably at home, but if in residential aged care then in modern settings.

The taskforce report’s first principle is that “the aged care system should support older people to live at home for as long as they wish and can do so safely”.

“As people remain at home with greater frailty, the home care system needs to be able to meet these more complex care needs,” it says. “Over the next 20 years an average annual increase of 44,000 participants is forecast, totalling almost two million older people using home care by 2042, compared with around one million currently.”

Even with the preference for home care, aggregate demand for nursing home care will continue to grow. Government analysis shows $37bn would be required to build the new stock to cater for demand by 2050, along with an additional $19bn to bring existing facilities up to scratch, particularly as they need to cater for those with more acute medical needs and dementia care.

If all of this is starting to sound expensive, that’s because it is. Already aged care is one of the federal government’s largest spending programs, about $25bn in 2021-22, and the cost is going only one way. “By 2032, projected total government expenditure is expected to more than double with $15.5bn for the Support at Home Program and $41.2bn for residential care,” the report notes.

They’re coming for your super

The taskforce concludes that given current financial difficulties and looming pressure on the federal budget a new approach to aged care funding is critical. But it rejects a proposal by the royal commission for increased income tax through an aged-care levy, similar to a Medicare levy.

“There are substantial intergenerational equity issues in asking the working-age population, which is becoming proportionally smaller, to pay for these services,” it says. “Moreover, superannuation has been designed to support people to grow their wealth and fund the costs associated with retirement, including aged care.”

This was quickly agreed to by the Albanese government, though it has yet to provide a formal response to the report. Instead, the taskforce has taken the road of more user-pays. It recommends tapping bank balances and superannuation of wealthier older Australians for more co-contributions to their aged care.

“Government funding will focus on ensuring all older people can access the care they need, while co-contributions will be required for the things people have typically paid for their whole lives, such as daily living expenses and, for those in residential care, accommodation costs,” the report says. In other words, the government will look after clinical and personal care needs such as nursing assistance or allied health, while individuals should contribute more to other elements of their food, cleaning, laundry and, in nursing home settings, accommodation costs.

The important caveat is that a strong safety net remains in place. It’s expected that if a person is receiving the Age Pension, in part or in whole, they will not be asked to pay more. This means self-funded retirees are set to bear the brunt of the changes, about half the 1.2 million people currently using aged-care services.

Without making any specific recommendations on the use of superannuation to pay for aged care, the taskforce report puts a clear focus on Treasury projections of the growing cohort in their 80s with significant balances. “Encouraging older people to access their wealth, including superannuation and home equity release when appropriate, will enable them to make contributions for services to enjoy a dignified experience in aged care,” the report says.

Committee for Economic Development Australia chief economist Cassandra Winzar says the recommendations offer a sensible framework to build a financially sustainable aged-care system.

“The government should continue to fund the care element of aged-care fees and provide a safety net for those who cannot afford to fund their own care, such as those on a full Age Pension,” she says.

“But it is reasonable that, where they can afford it, older Australians contribute more to their care through paying for daily living costs such as cleaning, food, laundry, activities and travel. Doing this would allow providers to offer more choice and flexibility, while reflecting the reality that these services are ordinarily paid for by individuals in their everyday life.”

Cassandra Winzar, Committee for Economic Development Australia chief economist. Picture: Supplied

According to leading aged-care accountants StewartBrown, the changes proposed by the taskforce would mean about $2bn a year more being paid by those in nursing homes or receiving in-home care once they kick in, with the system grandfathered for current users of the system.

I might have to pay more, but will the system at least be less confusing?

Anyone who has tried to access in-home care or particularly residential aged-care knows how byzantine the system is.

People wonder why a refundable accommodation deposit for a bed in one aged-care home is $1m and for another down the road it is a third of that. (Short answer is that providers are limited to charging $550,000 for a RAD but can apply for an exemption if their stock is higher quality.) They ask why can’t nursing home providers simply charge their residents more for providing better food or more services. (Again, they have to apply for permission from a government authority to enter an agreement to receive services that go beyond the mandated minimum requirements.)

A proper answer to both questions requires more space than is available here.

The taskforce has recognised that navigating the system is so complex that it is getting in the way of older Australians making informed decisions about their care. It sees the reform package as the start of change.

“Reforming co-contributions would provide an opportunity to create a simpler and fairer system by addressing inequities currently created by different reporting and assessment processes,” the taskforce says.

Will anything really change?

The taskforce report is now in the hands of the government. Wells is keen to secure bipartisan support for its recommendations, and the Coalition, after a few quibbles about when it was able to see the final document, has indicated it is open to discussions.

“We will not stand in the way of sensible reform that seeks to strengthen the system’s sustainability, but we need details on how the government plans to respond to this report so we can consult with older Australians, their families and the aged-care sector,” opposition aged-care spokeswoman Anne Ruston said.

If change can be made to demystify the aged-care system, to give Australians the tools to have those hard conversations about how they are planning to navigate their final years, to clarify the role of government to fund personal care and the role of individuals with the requisite means to fund what they have throughout their life, the taskforce can consider its job done. So too if change can be made to encourage older Australians to use their superannuation to pay some of their aged-care costs rather than stashing it away for their kids’ inheritance. After all, that’s what it’s supposed to be for.

As taskforce chairwoman Wells has presided over a meaningful, potentially far-reaching report. With her other hat on, the minister now has the important job of turning it into policy.