My wife and I are in our 70s. I am trying to plan our finances for our remaining years and realised that if one or other or both of us end up in a nursing home under the Fair Deal scheme, this could make a substantial dent in our presumed assets. The rules are quite complicated.
Can you advise on what the HSE would be entitled to if our assets included a family home worth, say, €1 million, an ARF of €900,000 and joint State pensions of circa €21,000 per annum in the case of either one or both of us ending up in a nursing home under Fair Deal?
Mr HM
Fair Deal is a pretty bureaucratic structure, but that is hardly surprising. It amounts to a very significant subsidy for most people towards the cost of long-term nursing home care if that proves necessary.
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We all envisage ourselves seeing out our days in our homes, surrounded by the familiar and those who love us. And if we are fortunate, that may prove to be the case. But, for many, it becomes impossible for a whole range of reasons – medical necessity, availability of care support, frailty of partners and proximity of family, among others.
About 31,500 people currently live in the 550 or so private and public nursing homes across the State. Given the demographics – with a sharp rise in the number of people over the age of 65 expected in the coming years – and increased longevity, it is inevitable that the numbers will rise quite dramatically.
In part, this is because the State has chosen not to invest sufficiently in the homecare sector despite evidence that it is both cheaper to keep people living at home than to institutionalise them, and that it is their undoubted preference. There is as shocking a shortage of long-term thinking in public policy on healthcare and community as there is in planning, infrastructure and housing.
When you consider the cost of private sector nursing home care these days – and the very limited availability of public nursing home beds – Fair Deal is good value for most people. But that doesn’t mean it won’t put a sizeable dent in your personal finances. The idea is that people pay according to their means, so those with significant assets can expect to pay more towards the cost of care.
None of which will make your decision any easier if one or both of you ultimately requires the sort of care that can currently only be delivered in a nursing home environment.
The basic arithmetic of Fair Deal is fairly straightforward: a single person will pay 80 per cent of their income towards the cost of care, plus 7.5 per cent of their assets each year. When it comes to the family home, it is treated as an asset subject to the 7.5 per cent charge, but it is chargeable only for the first three years of care.
As most people might not have the liquid assets available to pay the bill levied on their home, you can obtain a nursing home loan to cover the cost. It is repayable a year after the death of the nursing home resident, though that is extended where a spouse or other dependent continues to live in the property. If the home is sold, the bill falls due six months after the sale is completed.
Where, as in your case, it is one half of a couple that might be entering long-term care, the figures for the Fair Deal contribution is halved. So their contribution is assessed as 40 per cent of household income and 3.75 per cent of assets annually – including the home for three years.
That’s the easy part. But, as you mention, nothing is ever that straightforward.
Income
On the income side, the Fair Deal assessment will look at all sources of income. That includes any earnings, social welfare payments; rental income from any properties other than your home, and any fees, commissions and dividends either of you receive, including remuneration from holding a directorship or other office.
It also includes all pension income, but we will come back to that in a moment.
However, you deduct any income tax, PRSI and USC paid on earnings to net out your income from that source. Mortgage interest, and indeed any interest on home improvement loans, is also exempt from consideration, as are any sums you are obliged by law to pay in levies – such as the local property tax.
If you rent, the rent paid is not allowed as a contra to your income. The same goes for any maintenance payments you are obliged to honour and, for those with children in full-time education, an allowance is made.
Fair Deal is good value for most people. But that doesn’t mean it won’t put a sizeable dent in your personal finances
You can also discount any health expenses, such as GP visit costs (though that should not be an issue for people in their 70s who are entitled at least to a GP visit card), prescription charges and any medicine and medical expense costs remaining after tax relief is claimed.
Finally, if either of you has received payments under one of various redress schemes that catalogue part of Ireland’s history of shame, these also are exempt from assessment. These include payments under the Redress for Women in Certain Institutions Act 2015; the Surgical Symphysiotomy ex gratia scheme; the Michael Neary-related Lourdes Hospital Redress Scheme 2007; Lourdes Hospital Payment Scheme; and to victims of thalidomide.
People hosting Ukrainian refugees can also exclude any money received under the accommodation recognition payment from the assessment. Receipt of the income should be mentioned, but it should not be included in the assessment by the HSE.
Importantly, any income from renting out your own home is exempt as long as it is registered with the Residential Tenancies Board. I understand that, if unregistered, 40 per cent of rental income received will still be ignored by the assessment.
Capital
And that’s just the income side of things. In relation to capital – ie, assets and savings – that covers any property you own here or abroad (including your home), or any, as well as any business(es) you might own. It also includes any bank, post office or credit union savings, shares, bonds and any money you might have lent other people.
Finally, anything you have disposed of in the five years ahead of assessment is dragged back into the assessment, to avoid people deliberately dissipating assets ahead of a Fair Deal application.
In relation to capital, the first €36,000 is not included in the assessment for an individual. Where the person applying is part of a couple, the first €72,000 is excluded.
Pensions
What about pensions, you ask? Well, it depends. The key things are the type of pension and how it is paid.
State pensions are obviously included under welfare payments, but any other occupational pension paid via an annuity or under a defined benefit arrangement is assessed as income. However, when we get to approved retirement funds (ARFs), things are different.
Anything you have disposed of in the five years ahead of assessment is dragged back into the assessment to avoid people deliberately dissipating assets ahead of a Fair Deal application
ARFs are an option that allows people drawing down their pension to allow the balance of the fund remain invested in the hope of continued growth.
They are an option for people in occupational defined contribution pension arrangements, now the majority of private sector schemes. They are also an option for anyone holding a Personal Retirement Savings Accounts (PRSAs), a personal pension plan, additional voluntary contributions (AVCs) or most buyout bonds, which are used by people to retain more direct control of pension holdings after leaving a particular employer’s defined contribution scheme.
So your ARF will be treated as capital. The only upside is that any income you draw down from the ARF will not be included in an assessment of your income, as that would effectively be double-counting.
So where does that leave you with your €1 million home, your €900,000 ARF and your State pension income of €21,000 a year?
Provided that those are your only assets and income, you would pay €16,800 of the €21,000 State pension income as the contribution to the cost of care if both of you were in nursing home care – or if one dies and the other remains in care. If one of you is in care and the other is still at home, the annual contribution would be €8,400.
The basic arithmetic of Fair Deal is fairly straightforward: a single person will pay 80 per cent of their income towards the cost of care, plus 7.5 per cent of their assets each year
On the capital, if both of you were in care, the contribution in the first year would be €133,000 – 7 per cent of the €1.9 million combined value of the assets. The figure in subsequent years would naturally fall as the contributions eat into the value of the pension fund and property.
If both of you were in care for more than three years when the charge against your home stops, and assuming your ARF is still recording investment growth of around 4 per cent, you would have somewhere around €820,000 left in that fund, at which point the annual contribution would fall to around €57,500, declining thereafter as the fund reduces.
The charge against the home could be paid from the fund, or taken as a nursing home loan.
If one of you remained at home and the other was in care, the contribution from capital would be halved – so around €66,500 in year one . . . and around €28,750 from year four.
These are very much ballpark figures. You would need to get a formal valuation of the property if and when you were looking to make a formal Fair Deal application.
Finally, it is worth noting that if your assessed contribution is higher than the actual cost of the care, you will understandably be turned down for Fair Deal as the HSE cannot effectively “overcharge” you for the care. As a guide, in Dublin these days you can expect to pay around €7,000 a month for care, or €84,000 a year per person – before any extras such as hairdressing, a newspaper, physio assessments or inclusion in optional activities.
On that basis, even at your assessment – largely because of the very low income figure – it would seem to make sense for you to apply for Fair Deal if either of you needed long-term nursing home care.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
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