For both Centrelink Age Pension and Aged Care Income Tested Fee purposes, the income from a Term Deposit is deemed and fully assessable. Depending on the amount invested, this can reduce the Age Pension and may also result in an Income Tested Fee being payable.
Conversely, for a Care Annuity, the assessable income is the amount received less an annual ‘deductible amount’. The ‘deductible’ amount represents the return of your initial capital investment. Additionally, the asset value of the Annuity will reduce by the deductible amount each year, which can also increase social security entitlements.
For example, if $400,000 is invested by a 90 year old female, $81,466.40 would be considered the ‘deductible amount’. If payments of $13,644 were received for the year (ie. similar to interest) no income would be assessable for Centrelink or Aged Care Means Tested Fees. This is because the ‘deductible’ amount exceeds the payments received from the annuity. To demonstrate the benefit of a Care Annuity the following example is provided.
|Term Deposit||Care Annuity|
|Term Deposit – $400,000Bank – $102,000||Care Annuity – $400,000 Bank – $102,000|
|Interest @ 3.5%||$17,570||$3,570|
|Care Annuity Payment||Nil||$13,644|
|Income Tested Fee||$2,646||Nil|
|Basic Daily Care Fees||$16,973||$16,973|
|Difference (Year 1)||$2,641|
As demonstrated in the above scenario, the use of a Care Annuity has the following benefits:
A higher amount of Age Pension is received ($351 pa better off in year 1).
No Income Tested Fee is payable ($2,646 pa better off).
Ongoing Benefits of the Care Annuity – Increasing Age Pension Benefits
The other benefit of an annuity is that Centrelink reduce the assessable value of the asset every six months, which should result in a larger Age Pension benefit. The following table demonstrates the effect of this reducing asset value. It is based on the purchase of a Care Annuity of $400,000, with a deductible amount $81,466.40 pa and other assets of $100,000 in a term deposit.
|Initial||6 months||12 months||18 months||24 months|
|Care Annuity Value Counted by Centrelink||$400,000||$359,267||$318,533||$277,820||$237,068|
|Age Pension pa||$15,914||$17,503||$19,091||$20,679||$21,913Full Pension|