The Pros and Cons of the FHSSS

The idea of saving for your first home deposit can be a daunting task these days. Houses are so expensive, that many people are opting out of owning and sticking to renting. According to the 2016 census, there are almost as many Australians renting now as there are who own their properties – and that divide is only growing wider.

So, what exactly is the FHSSS and how could it help you obtain the Aussie dream of owning your own home?

In order to address the affordability issue, the federal government introduced the ‘First Home Super Saver Scheme’ in July 2017. Basically, the scheme allows you to make super contributions that are later accessible to put toward your first home deposit. The low tax nature of a super account is what makes this scheme attractive.

Sounds simple, right?

While the FHSSS is perfectly suited to some, there is a lot of fine print that may detract from its immediate appeal. If you are saving for your first home it’s definitely worth mentioning to your financial advisor, but in the meantime here’s our list of major pros and cons of the FHSSS:

Pros:

  • You may save up to $30,000 under the scheme, or $60,000 if purchasing with another person, with added interest from the ATO.
  • You may make concessional (before tax) contributions under a salary sacrifice agreement with your employer. These will still be taxed, however the tax rate is generally lower than the rate normally paid on taxable income.
  • You may access your money saved under the FHSSS, even if you intend to purchase a property with someone who is not a first home owner.
  • Withdrawals made under the FHSSS will not be used in any ATO income tests. Meaning, it will not affect any debt or social security payments.

Cons:

  • Super contributions must be voluntary, meaning you cannot withdraw any super paid by your employer under the scheme.
  • You may not contribute more than $15,000 per year under the scheme.
  • You must not have previously owned a home, and intend to live in your property immediately after purchase.
  • Tax is still payable upon withdrawal, though with a 30% tax offset.
  • If you change your mind about purchasing your home, you will not be able to withdraw any savings under the FHSSS. Rather, they will stay in your super account until retirement.

 

Sources: www.abs.gov.au, www.ato.gov.au, www.superguide.com.au

11 common aged care questions answered

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

Aged Care is an extremely complex area but planning ahead and obtaining professional advice and help you make the best financial decisions for your loved ones. Below are the answers to the most commonly asked questions about Aged Care.

As people live longer, an ever increasing number will end up in aged care. The number of people in permanent aged care in Australia is expected to triple in the next 35 years, from 225,000 today to 700,000 in 2050.

The aged care industry is very complicated and many decisions must be made, often involving large sums of money.

The following is a list of the most common questions that we hear, and the answers to them.

1. Why is aged care so expensive?

A: Aged care is very labour intensive, and land and buildings are expensive to buy and maintain. The owners of such facilities expect to make a return on their investment. From a client’s point of view, typical fees include accommodation deposits and charges, daily fees, extra services fees and means-tested fees.

2. Is the accommodation deposit negotiable?

A: Yes. Accommodation deposits (known as RADs or Refundable Accommodation Deposits) can be as high as $2 million to secure a bed in an aged care facility. In many cases, these RADs are negotiable and at times can be as much as halved. Willingness to negotiate on RADs depends very much on the demand for beds – and the supply of beds – in a particular aged care facility.

3. What alternatives are there for paying the RAD?

A: Many aged care facilities prefer the RAD be paid as a lump sum up-front. However, it is possible to choose to pay interest payments only or pay with a combination of lump sum and interest payments. A bank guarantee is not an alternative.

4. Will the family get all of the RAD back?

A: In a government accredited aged care facility, the accommodation deposit is fully government guaranteed. Before July 2014, the accommodation bond repaid to the family would be reduced by retention amounts deducted by the aged care facility. Since July 2014, any lump sum paid as a RAD is now generally repaid in full, 14 days after a person leaves the facility, or where the resident has passed away, to their estate when probate has been granted.

5. Why does the Government charge different daily care fees to residents?

A: The standard daily care fee for a resident in an aged care facility ($49.42 per day) is set at 85 per cent of the full Age Pension. All residents must pay this fee. However, it does not cover the full care costs of the resident. The Government may ask the resident to pay an additional amount as a means tested fee and then pay a subsidy for each resident’s care needs to make up any shortfall.

6. What is the Means Tested Fee?

A: The means tested fee is set by the Government and collected by the aged care facility based on an individual assessment for each resident. It is an attempt by the Government to ask residents with the financial capacity, to contribute to the cost of care. This fee can range from nothing to a maximum $245.62 per day.

7. Why is the Means Tested Fee so high and how do I reduce it?

A: The Means Tested Fee is based upon the income and assets of the aged care resident, so it increases as the resident’s assessable assets and income increase. For example, a resident on a part Age Pension with assets totalling $200,000 and deemed to be earning $28,312 per year, will pay $1.97 per day ($719 per year) in aged care, while a resident with assets totalling $1.2 million and deemed to be earning $38,247 per year, will pay $67.02 per day ($24,464 per year). One option to reduce the Means Tested Fee is to buy an aged care annuity, if appropriate.

8. What is the Extra Services Fee and should I pay it?

A: The Extra Services Fee, which can be as much as $120 per day, is supposed to give the resident extra services, including more activities and access to additional services like podiatrists and hairdressers. If your aged care facility is charging an Extra Services Fee, you should ask what services are being delivered and assess whether or not you are receiving value for money.

9. Paying daily fees will impact on my cash flow. What strategies are there for dealing with this?

A: It is possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on your cashflow. This means, of course, that less of the RAD will be returned at the end of the care period.

10. What implications are there for my social security or pension?

A: The RAD is an excluded asset for social security purposes. Therefore, in some cases, where existing cash is used to pay for a RAD, it can result in a new or increased pension entitlement. More often, a family home is sold to fund the RAD. In this case, while the home is excluded, the proceeds from its sale are counted as an asset. As a result, the cash remaining after paying the RAD can often result in a pension being reduced or lost entirely. However, there are ways to maintain, or even increase, one’s current entitlements.

11. Will I need to sell the family home to pay the RAD?

A: Not necessarily. Four key questions are:

  • Do you need to sell the home?
  • Can you afford to keep it?
  • What happens if you rent it out? and
  • Will your decision have an impact on any pension or aged care fees?

The family home is often a couple’s most valuable asset and many people wrongly assume that it needs to be sold to provide funds for RADs. The key driver is to make sure that, like any valuable asset, the home generates a financial return. This return takes the form of rental income and capital growth (which RADs certainly don’t provide). The home is treated on a concessional basis for the Age Pension and aged care fees.

For Age Pension purposes, if you move into care the former home’s value will be excluded from the Age Pension assets test for two years, although any rental income will be assessable under the income test. The value of the home is capped at $162,815 for aged care means testing and any rental income is assessable.

Source: Money and Life by the Financial Planning Association of Australia

Read This If You Receive Centrelink Assistance

Organisations, like people, aren’t perfect. Large organisations are prone to errors just as individuals make mistakes. And Centrelink is no exception.

Recently, a client (who is retired and receives a Centrelink pension) came in to see us for her annual review. While reviewing her finances I felt that her fortnightly pension was too low. So I did some investigating. Several phone calls and phone wait queues later: my calculations were confirmed. Unbeknownst to my client, Centrelink was paying her hundreds less that what she was entitled to.

Now look, this was a simple error. As I mentioned, no organisation is perfect; to err is human. But the lesson? Our financial lives should never be left on auto-drive. I can’t emphasise enough how important it is to get an independent financial review. In fact, I can share three tips from this experience.

Tip #1 Don’t assume organisational omniscience

In other words, remember that organisations, particularly large organisations, aren’t infallible. Errors can occur, so stay vigilant. That’s the beauty of getting another set of (qualified and independent) eyes on your financials.

Tip # 2 Get regular financial health checks

Just as we need to be proactive, rather than simply reactive, when it comes to our health — so too our finances. Don’t just wait til something goes wrong. Have an annual or even 6 monthly financial health check. This is an opportunity to review and possibly rejig your financial present and future. Had my client not checked in for an annual review she might possibly still be hundreds, if not thousands out of pocket.

Tip # 3 Don’t play the blame game

When things go wrong, it’s human nature to feel slighted, angry and start wagging the finger. This is neither helpful nor humane. Far better to assume that errors are the rule rather than the exception, than to expect perfection and get outraged when mistakes occur. This way you stay vigilant, calm and clear.

Whether you receive Centrelink Assistance or someone you love receives it, please read this as your reminder to get a regular financial health check. Or stay calm and….call Centrelink.

Get Engaged With Your Superannuation

With the end of the financial year looming, tension is always on the rise. Is your paper work up to date? Have you made an appointment with your accountant? Do they have to play those end of financial year ads on a loop?

With so much to think about, and so many unwelcome reminders, stress can make us overlook some important details.

We’re all guilty of it – you receive your superannuation statement in the mail, consider it for one moment, then toss it out without a second glance. You’ve got a tax return to organise, why would you take time out to examine that extra piece of paperwork?

Your super matters now.

Whether you’re going on 50, or have scarcely scraped your 20’s, if you’ve got a job, chances are you’ll have one or more superannuation funds already earning money. Making sure your super reaches it’s full earning potential, however, is where your financial advisor comes in.

Superannuation isn’t something you should be thinking about when it’s almost time to retire, if you put in the work now, you’ll be reaping the rewards later in life. It is what will differentiate your lifestyle from your neighbours, friends and colleagues – even with the same income, within the same work industry.

Many individuals who have their superannuation professionally assessed, find that they’re under-utilising, overpaying or simply have no need for their product.

So next year, when you receive that little piece of paper, think twice before adding it to the junk mail pile. A little extra labour now, will mean a whole lot of reward later on. Call your financial advisor and make sure your super is working as hard as you are.

Don’t be complacent, get engaged with your super!

How to Avoid Conflict After the Death of a Loved One

Death, sex, and money are taboo topics most of us avoid in polite conversation, but we shouldn’t avoid addressing them all together.

When a loved one dies, the grief alone is enough to deal with, let alone adding family conflicts regarding money to the mix.

According to ASIC, it’s estimated that nearly half of the Australian population will die without a will in place. That must sound crazy, but unfortunately my experience as a Certified Financial Planner confirms that estimation.

The sheer number of clients who come to see us about family conflict following the death of a parent, spouse, or other relative is mind blowing. Especially since it’s a simple problem to prevent.

While it’s never nice to think about death, as Benjamin Franklin wisely noted: “in this world nothing can be said to be certain, except death and taxes.” Both of life’s inevitabilities are what we’re here to help you plan for.

If you want to avoid conflict after the death of a loved one, I can’t stress enough how important it is to have wills and powers of attorney in place. And it’s something we can help with, as we work closely with a specialist estate planning law firm, based in Melbourne, that provides the structure for us to help our clients put together a will.

Of course, when it comes to estate planning, wills and power of attorney, it’s not a just-add-water situation. Some family situations are more complex than others. Deciding what happens to your assets after your death requires reflection and courage. Which is why you’re only as alone as you choose to be. There are many professionals available to support you through the process. We at Financial Aspects are happy to guide you.

It may feel uncomfortable, but getting your will and estate planning sorted out saves your loved ones from future disharmony.