C28/2006 Aged Care and Pensions - Further Harmonisation Aged Care Amendment (Residential Care) Act 2006

Purpose

This Departmental Instruction is to advise of changes to the assets assessment for entry into residential aged care (RAC) rules contained in the Aged Care Act 1997.

These changes affect aged care assets assessments involving gifting of assets or complying income streams.  This is a continuation of the harmonisation of aged care and pension assessments.

Contents

This instruction contains the following topics:

• Overview
• Gifting
• Complying income streams

Background

Currently, the assets assessment for entry into residential aged care (RAC) does not treat gifts and certain types of complying income streams in the same way as the pension assets test.  This can be confusing for older people considering entry into an aged care home, and can also mean that significant assets are omitted when calculating a person's entitlement to residential aged care subsidies.

Intention of changes

For those entering permanent RAC, these changes will bring the assets assessments of gifts or deprived assets and complying income streams into harmonisation with the rules that apply for pension purposes.

These changes will not affect existing aged care residents, unless they change aged care homes and are required to undergo another aged care assets assessment on or after the commencement date.

Legislation

The legislative amendments are contained in Schedule 1 of the Aged Care Amendment (Residential Care) Act 2006.

Commencement dates

The commencement date for these changes to aged care assessments (ACA) is 1 January 2007.

Note: ACA cases with complying income streams will not be impacted until 20 September 2007.

Contacts

Any enquiries about this Instruction or policy aspects of the project should be directed to Elaine Tse, Income Support and Aged Care Policy (16011).

Any system enquiries should be directed to Mark Hodgson, New Systems Development (68456).

Current situation

Currently, gifts are not considered as assets in aged care assessments.

However, gifts made by pensioners are included in the assets test for pension purposes, under the deprivation provisions (CLIK Policy Library Part 9/Chapter 6).

This means that a pensioner who has gifted assets is subject to differing assets test rules depending on whether the assessment is for their pension or for entry into permanent RAC.

It can also mean that a pensioner who has gifted assets may currently be assessed as being entitled to concessional or assisted status for the purposes of RAC subsidies.  However, if the gifted assets had been included in the assessment, they would have been assessed as not entitled to the subsidies.

New gifting rules for aged care assessments

From 1 January 2007, the gifting rules applying to ACA will be brought into alignment with those applying to pension assessments.

Gifts made in excess of $10,000 in a financial year, or in excess of $30,000 over a five-year rolling period, will be deemed to be part of a person's assets for the purposes of the aged care assets test.

Only deprived assets arising from gifts made on or after 10 May 2006 (Budget announcement) will be counted for ACA.

Legislation

Subsection 44-10(1C) will be inserted into the Aged Care Act 1997.

“(1C) The value of a person's assets is taken to include the amount that the Secretary determines to be the amount:

(a) if the person is receiving an income support supplement or a service pension – that would be included in the value of the person's assets if Subdivisions B and BB of Division 11 of Part IIIB of the Veterans' Entitlements Act 1986 applied for the purposes of this Act; and

(b) otherwise – that would be included in the value of the person's assets if Division 2 of Part 3.12 of the Social Security Act 1991 applied for the purposes of this Act.

Note: Subdivisions B and BB of Division 11 of Part IIIB of the Veterans' Entitlements Act 1986, and Division 2 of Part 3.12 of the Social Security Act 1991, deal with disposal of assets.”

Updated form

The “Permanent Residential Aged Care, Request for an Assets Assessment” form has been revised by the Department of Health and Ageing to include questions about gifts.

ACA gifting rules based on pension gifting rules

The new aged care gifting rules for service pensioners and income support supplement recipients are the same as the deprivation provisions for pension assessments in the Veterans' Entitlements Act 1986 (VEA) under Part IIIB, Division 11, subdivisions B and BB.

The general deprivation provisions at sections 52E and 52F of the VEA will apply.  The assessment of deprivations in a tax year (sections 52JA and 52JC of the VEA) and deprivations in a five-year rolling period (sections 52JB and 52JD of the VEA) will also apply.

ACA cases for age pensioners will also be subject to the new gifting rules.  However, these will be based on the corresponding disposal of assets provisions in Division 2, Part 3.12 of the Social Security Act 1991.

ACA cases under old rules

ACA cases that will n — eed to be assessed under the old gifting rules are those where:

the person entered aged care on or before 31/12/2006; or

the person has not yet entered aged care and the ACA case is finalised on or before 31/12/2006.

These cases must be assessed under the rules that apply until 31/12/2006, ie any amounts gifted not considered for ACA.

Priority ACA cases to be finalised by 31/12/2006

It is recommended that ACA cases lodged before 31/12/06 which involve gifts, especially those for people who have not yet entered aged care, be identified and finalised prior to the Christmas shutdown to enable assessment under the old gifting rules.

AIS queries of currently outstanding ACA cases have identified that there are 5 cases with gifts in the pension assessment and, of these, only 1 case has deprived assets arising from a post 10 May 2006 gift.  The Aged Care Contact Officer in the relevant location (NSW) will be contacted with details of this case to enable priority action.

ACA cases where new rules apply

ACA cases that must be assessed under the new gifting rules are those where the assessment is finalised on or after 1/1/2007 and the person:

entered aged care on or after 1/1/2007; or

has not yet entered aged care; or

changed aged care accommodation on or after 1/1/2007 and needs to undergo another assessment (e.g. accommodation bond not transferred).

ACA system changes

The new business rules for gifting will be reflected in the ACA system.  These system changes are planned to be available by 9/1/2007.  During the working days from 2/1/2007 to 8/1/2007, do not process any ACA cases involving gifts (unless the old rules apply).  All other ACA cases can be processed as normal during this period.

The updated ACA system will retrieve deprived assets values, resulting from gifts made after 10/5/2006, and display these in the assets details listed on the Assessment Totals screen (described on page 26 of the Fairer Assets Test User Manual).

As these deprived asset values will be retrieved from the person's PIPS assessment, the usual practice of updating the person's PIPS assessment as required before using the ACA system will apply.

Report of outstanding ACA worksheets

On the first working day after the system changes, a report will be generated for manual action.  This report will be an AIS query listing any outstanding ACA worksheets which also have deprived assets recorded in the PIPS assessment.

Aged Care Contact officers will need to action this report to withdraw and reprocess ACA cases with deprived assets outstanding on 8/1/07.  They will also need to ensure that these cases are assessed under the correct rules, depending on the person's date of entry into aged care.

Manual intervention if aged care entry was prior to 1/1/2007

For cases finalised after 1/1/2007, manual intervention is required if the person's date of entry into aged care was on or before 31/12/2006.  This is because such cases must be assessed under the old rules with deprived amounts not counted as assets for aged care purposes.

To ensure that a decision is made about whether manual intervention is required, a warning message will appear for all ACA cases with deprived assets.

Warning message

For the first 12 months of the new gifting rules, the following warning message will be triggered by the ACA system if deprived assets are included in the asset details retrieved from the person's PIPS assessment:

“Deprived Assets exist in this assessment.  If <t>> entered an aged care facility before 1 January 2007, you must delete the Deprived Asset row.”

If this warning message is displayed, the assessor will need to check the person's date of entry into aged care.  If this date was on or before 31/12/2006, any 'deprived assets' rows will need to be deleted from the assets list on the Assessment Totals screen. (The procedure for deleting asset rows is described on page 28 of the Fairer Assets Test User Manual)

Example 1 – ACA case with gifting under the old rules

Mr Smith lodges an ACA form in January 2007, which indicates that he entered aged care on 14/12/2006.  The request for aged care assessment is for this current admission.  Mr Smith gifted $20,000 to his daughter on 20/6/2006, which resulted in a deprived asset of $10,000 being held in his pension assessment.

Because Mr Smith's assessment is for his entry to aged care prior to 1/1/2007, he is assessed under the old gifting rules.  Therefore, the $10,000 deprived asset is not considered in his ACA assessment.

Date gifted

Gift Amount

Deprived Asset -Pension

30/10/2005

$8,000

nil

01/01/2006

$4,000

$2,000

25/5/2006

$5,000

$5,000

Total

$17,000

$7,000

Date gifted

Gift Amount

Deprived Asset - ACA

25/5/2006

$5,000

$5,000

Current situation

Currently, income streams purchased on or after 20 September 2004 may be treated differently depending whether the assets assessment is for pension or aged care.

Income streams from which the capital component cannot be drawn upon are disregarded for ACA purposes.

For pension purposes, complying (lifetime, life-expectancy or market-linked) income streams purchased on or after 20 September 2004 are eligible for a 50% assets test exemption.

New pension assessment rules for complying income streams

From 20 September 2007, new rules will apply to the assets assessment of complying income streams for pension assessment purposes. The provisions relating to the changes to the pension assessment of complying income streams have not yet been passed by Parliament.  Further information about the changes will be advised closer to the commencement date.

Harmonisation of income streams assessments

As a continuation of the harmonisation of aged care and pension assessments, the new income stream pension assessment rules will also apply to ACA cases.  This will affect pensioners and prospective aged care residents who purchase complying income streams on or after 20 September 2007.

Legislation

Subsection 44-10(1A) will be inserted into the Aged Care Act 1997.

“(1A) If a person who is receiving an income support supplement or a service pension has an income stream (within the meaning of the Veterans' Entitlements Act 1986) that was purchased on or after 20 September 2007, the value of the person's assets:

(a) is taken to include the amount that the Secretary determines to be the value of that income stream that would be included in the value of the person's assets if Subdivision A of Division 11 of Part IIIB of the Veterans' Entitlements Act 1986 applied for the purposes of this Act; and

(b) is taken to exclude the amount that the Secretary determines to be the value of that income stream that would not be included in the value of that income stream that would not be included in the value of the person's assets if Subdivision A of Division 11 of Part IIIB of the Veterans' Entitlements Act 1986 applied for the purposes of this Act.”

System changes

It is planned to incorporate these new business rules in the ACA system.  This change is deferred until closer to 20 September 2007 and separate advice will be issued.

Income streams purchased before 20 Sept 2007

While the changes to the assets assessment of income streams for aged care purposes have been legislated to take effect from 1 January 2007, only ACA cases for applicants who purchase an income stream on or after 20 September 2007 are impacted.

The current ACA rules for income streams will continue to apply to income streams purchased before 20 September 2007 i.e. income streams that are classified as “50% assets test exemption” for pension purposes will continue to be fully exempt for ACA purposes.