Preparing clients financially to enter aged care later in life is a vital aim of financial planning. Some 25 per cent of the population will be over 65 years of age by the year 2100 – up from just 4 per cent at the start of the 20th century, according to Australian Bureau of Statistics data. However, as with other issues around mortality and ageing, it can be a difficult topic to raise.
One way to start the conversation is described as the “40-70 rule”, referring to the importance of the ages 40 and 70 in aged care decision-making.
“When they turn 40, children need to think about aged-care issues in relation to their 70-year-old parents,” says Anna Lawton, senior manager of aged care advice for Equity Trustees.
The importance of careful planning is further highlighted by the complex aged care reforms introduced from July 1 this year. These include changes to fees and charges, along with altered eligibility rules for home-care arrangements and care subsidies.
“With the accompanying complicated financial decisions that now need to be made when planning for aged care options, the 40-70 rule applies now, more than ever,” Lawton says.
Financial planners with clients aged in their 40s should consider starting a conversation about the state of the clients’ parents’ health, and determine whether the clients are aware of their parents’ wishes. The conversation is particularly crucial for planners whose clients themselves are 70 years of age or older.
“It is important that those aged 70 face this reality, and make the decisions on aged care for themselves, while they are able to,” Lawton says.
Topics for discussion include the sale of the family home; varying costs of alternative accommodation options; the level of ongoing fees; and any impact of these actions on pension entitlements. It is easier to have the conversation now, about what clients want for their future, before a time comes when they may be in hospital and unable to clearly make the decision themselves.
The investment opportunity
Aged care also represents an increasingly important investment opportunity within client portfolios, given the extensive infrastructure required to support our ageing population. The regulatory changes that took effect from July are seeing a shift away from government-subsidised bond systems toward a user-pays model, says Chris Smith, head of healthcare and retirement property funds, Australian Unity Investments.
At present there is only one aged care facility among the 26 assets that make up the $600 million Australian Unity Healthcare Property Trust – the Constitution Hill retirement village and assisted living facility in Westmead, Sydney. However, Smith says the number of similar assets is set to grow considerably.
“We’re looking at other aged care opportunities nationally, particularly in New South Wales and Queensland,” he says.
Smith says the Healthcare Property Trust has consistently attracted strong interest among clients of its financial planning network, Australian Unity Personal Financial Services (AUPFS). As well as being listed on the AUPFS approved product list, the Healthcare Property Trust is also offered to about 5000 smaller-scale investors via other channels.
“I think things are changing, driven by the deregulation happening in the sector, and some other changes for the good, so we’ll see where that takes us,” Smith says.
