My spouse and I, being in our 70s, are in the process of outlining our financial plans for the years we have left. We’ve recognised the fact that should one or both of us require to be admitted into a nursing home under the Fair Deal scheme, our assets could be significantly affected. The regulations surrounding this appear rather complex.
I would appreciate any guidance on how the HSE might approach our assets which consist of a family property estimated to be worth about €1 million, €900,000 in an Approved Retirement Fund (ARF), and combined State pensions amounting to approximately €21,000 per annum. Either one or both of us might potentially need to be cared for under the Fair Deal scheme in a nursing home.
The Fair Deal is an intricate bureaucratic system, which isn’t surprising considering its mission is to provide a remarkable care subsidy for a majority of individuals in need of long-term nursing home care.
Many of us picture spending our final days within the comfort of our homes, surrounded by familiar faces and those who care about us. While this is achievable for some, others may find it unmanageable due to a variety of factors such as medical requirements, care support availability, frailty of partners or location of relatives, to name a few.
Currently, about 31,500 individuals reside in approximately 550 public and private nursing homes nationwide. The growing number of people aged over 65 years and increased life expectancy suggest that these statistics will rise considerably in the future.
A contributing factor to this situation is that the State has not invested adequately in the homecare sector, despite its cost-effectiveness compared to institutional care, and the preference of individuals to remain in their homes. The lack of long-term planning in public healthcare, community services, infrastructure and housing is disappointingly evident.
Private sector nursing home care costs are quite high at present, and the availability of public nursing home beds is limited, making the Fair Deal an attractive option for many. Still, it can significantly affect one’s personal finances as the cost is based on one’s assets, meaning individuals with greater assets will incur higher expenses.
This information might not make your decision simpler if the need for the care typically provided in a nursing home becomes necessary for either or both of you.
The underlying calculations of the Fair Deal programme are pretty simple: an individual is required to contribute 80% of their income to care costs, along with an additional 7.5% of their assets annually. For a family home, it’s considered as an asset and subject to the 7.5% levy, but this only applies for the first three years of care.
Given that many people may lack the immediate financial resources to meet this bill, they can opt for a care home loan which covers this cost. This loan is expected to be paid back a year following the care home resident’s death, though the terms can be extended if a spouse or dependent continues to reside in the property. If the house is sold, the payment is required six months after the sale is finalised.
In situations where only one partner requires long term care, as in your circumstance, the Fair Deal contribution is split in half. This means that the individual’s contribution is judged at 40% of household income and 3.75% of assets yearly, which includes the family home for the first three years.
However, things aren’t always so simple. In terms of income, the Fair Deal evaluation takes into account all sources. This encompasses wages, social welfare allowances, rental income from any properties (excluding your residence), and any fees, commissions or dividends you might receive, such as those from holding a director position.
Pension income will also be considered, but let’s delve more into that later. However, you can offset any income tax, PRSI, and USC paid on your earnings to balance your income. Mortgage interest and any home improvement loans are also kept out of consideration, as is any legally required levies like the local property tax.
If you’re renting, rent payments are not permitted as an offset to your income. Maintenance obligations are treated in the same way. If you have children in full time education, certain allowances apply. The Fair Deal programme can be financially favourable for many, however, it doesn’t mean it won’t take a significant chunk from your personal finances.
Also take into account, any healthcare related expenses, for instance, charges for GP visits (although individuals in their 70s, ideally, should have access to at least a GP visit card), bills for prescriptions, and leftover medical expenses after claiming tax relief, can all be deducted.
Moreover, if either of the individuals has been a recipient of monetary aid under any of the various compensation schemes that record part of Ireland’s unfortunate history, these are also exempted from the evaluation. Examples of such schemes include payments under the 2015 Act of Redress for Women in Certain Institutions; the ex gratia scheme for Surgical Symphysiotomy, the 2007 Lourdes Hospital Redress Scheme related to Michael Neary; Lourdes Hospital Payment Scheme, and to the victims of thalidomide.
Funds acquired as part of the accommodation acknowledgment payment for hosting refugees from Ukraine can also be excluded from the appraisal. The income should be referred to, but it shouldn’t be incorporated into the HSE’s assessment.
It’s crucial to note that any revenue garnered from renting your residential property is exempted provided it is officially registered with the Residential Tenancies Board. If not registered, it’s expected that 40% of the rental income would still be disregarded by the assessment.
Moving on from income, let’s consider capital – your assets and reserves – which encompasses property owned domestically or internationally (including your residence), or any business enterprise(s) you might own. Your savings in the bank, post office or credit union, shares, bonds, and any loans you’ve given to others are also included.
Of note is that anything you’ve sold or disposed of in the preceding five years prior to the assessment is considered in the evaluation, preventing any potential intentional dispersal of wealth before applying for a Fair Deal.
Regarding capital, the initial €36,000 is not incorporated in the individual’s assessment. If the applicant is part of a couple, the initial €72,000 isn’t considered.
Pensions, you’re asking? It varies. The pension type and mode of payment are prime factors. State pensions are included under welfare benefits, but any other work-related pension disbursed via an annuity or a defined benefit plan is considered income. Nonetheless, the rules change when it comes to Approved Retirement Funds (ARFs).
The assessment for a Fair Deal application takes into account any assets you’ve disposed of in the five years preceding the evaluation. This is done to circumvent deliberate dilution of assets in anticipation of an application.
An Approved Retirement Fund (ARF) stands as an investment option for individuals drawing their pensions. It allows the remaining fund balance to stay invested, potentially allowing further growth. This is a feasible strategy for those individuals involved in defined contribution pension arrangements, primarily in the private sector. It’s also relevant for Personal Retirement Savings Account (PRSA) holders, personal pension plan subscribers, individuals making additional voluntary contributions (AVCs) and even those operating most buyout bonds. The latter allows individuals to retain increased control over pension holdings post-departure from a specific employer’s defined contribution scheme.
Your ARF will be treated as capital in this instance. The silver lining here is that income drawn from the ARF will not count towards an income assessment, avoiding double-counting.
Thus, with a €1 million home, a €900,000 ARF and a State pension income of €21,000 annually, what is your prospect if these are your solitary assets and income? If you’re both receiving nursing home care, or if one partner passes and the other remains in care, you’d contribute €16,800 of your €21,000 State pension income towards care costs. However, if one of you is still domiciled at home while the other is in care, the annual contribution drops to €8,400.
The basic mathematics of the Fair Deal operates simply: individuals contribute 80 per cent of their income towards care costs, plus an additional 7.5 per cent of their assets each year.
In terms of capital, should both parties be in care, the first year’s contribution would be €133,000 – 7 per cent of the combined asset value of €1.9 million. Naturally, this figure would decrease in the following years as contributions diminish the value of the pension fund and property.
If care extends beyond three years when the home-charge ceases, and providing your ARF continues to record around 4 per cent growth in investments, you’d likely have roughly €820,000 remaining in the fund. At this juncture, the annual contribution would decrease to approximately €57,500, continuing to drop as the pension fund dwindles.
The expense associated with the house can be managed either through a fund or procured as a loan for nursing home care. In a scenario where one partner stays home while the other is taken into care, the originating contribution from capital would be reduced by 50%. This equates, in a rough calculation, to about €66,500 in the first year, and approximately €28,750 from the fourth year onwards.
These figures should be taken as a rough estimation. It would be essential to commission a formal property valuation if or when a formal application for the Fair Deal scheme is being considered.
Moreover, it’s important to acknowledge that if your calculated contributions exceed the actual cost of care, you would not be unfairly charged more than the cost and it is likely your Fair Deal application would be rejected. For instance, in Dublin, the routine cost of care is approximately €7,000 per month or €84,000 per year per person, exclusive of any additional costs such as physiotherapy evaluation, haircuts, newspapers or optional activity participation.
Considering your circumstances, particularly the low income figure, an application for the Fair Deal scheme may be a logical course of action if the need for continuous nursing home care arises for either person.