There is much comment from members about the equity release schemes that are available
for the elderly and most of them concern the product offered by one company - Sentinel
We are from time to time asked for comment by members but as we consider that it is a personal choice
and therefore we don’t believe that our views should influence the decision.
Our only advice is that the parents should discuss it with the family who may prefer to finance
them and retain the equity in the home.
However many of the siblings are much better off than their parents due to higher wages and
better economic conditions.
They feel that as they are not seeking an inheritance they would prefer the parents
to enjoy the twilight of their lives with adequate monies to so do.
Sentinel has issued a very informative brochure and we give some extracts below
The Government’s “Ageing in Place” strategy is designed to help New Zealand seniors,
as they grow older and perhaps begin to need help with everyday tasks,
to continue to live at home with dignity and independence.
There are a range of support services and state benefits available.
These are essentially a safety net and many of them are income or asset tested.
New Zealanders of all ages value their ability to live independently.
But without a plan for ageing in place it can be hard to stay in control of your life.
A combination of a lifetime loan and available state benefits will allow you
to plan for your future, whatever it may bring, with confidence.
This script examines the various financial options and how they work together.
A key element of this strategy is “Ageing in Place” whereby seniors can continue to live at home
and maintain their independence as long as possible drawing on support as and when needed.
It implies access to services and resources which ensure a good quality of life despite
age-related illness or disability.
The need for support will inevitably increase with age
- more than half those over 65 have a disability, with the rate rising
to two thirds in the 75 plus age group.
Only 15% of New Zealanders over the age of 85 remain
living in the community independent of support services.
However only 4% of adults with disabilities live in residential care facilities.
A high proportion of seniors remain in their homes until the end of their lives.
Successful “Ageing in Place” depends on a number of factors:-
We will now look at the various services and benefits available to support this strategy.
Ageing in Place does not only make social sense
- it also makes economic sense with the Government saving around $15,000 pa for each person
cared for at home rather than in residential care(CHRANZ 6/04).
There are already areas of Age in Place support and we are likely to see more under the
Health of Older People Strategy due to be fully implemented by 2010.
Current key state benefits for seniors are as follows:-
Whilst NZ Super only provides for the basics there are further needs-based provisions for
health, disabilities, essential home repairs and maintenance etc.
Several of these depend not only on need but are also means tested.
Qualifying costs include:-
Essential repairs and maintenance are those required to maintain the house
and property to a habitable standard.
They should prevent damage or deterioration and therefore loss of value
but not add value and must be supported by receipts.
It is estimated that seniors are currently receiving over $40m of Accommodation Supplement
each year but many are not claiming what they are entitled to.
It does not cover home improvements or modifications but those with disabilities may
be entitled to house modification grants and
those disabled by accident may be eligible for ACC funding.
Example- Mr and Mrs Smith (both 70 and neither disabled) live in Auckland,
their only income is NZ Super and cash assets are $2000.
A building inspection done as part of their Sentinel lifetime loan application
has identified a leaking water pipe, faulty hot water cylinder and dangerous wiring.
The chimney also needs sweeping, the roof is leaking and
the house has not been painted for 10 years- sound familiar?
The total costs are $18000, which they fund with their lifetime loan.
The rates and building insurance come to a further $2000.
When the work is completed they are eligible to claim Accommodation Supplement as follows:-
| Total Costs | 20,000 |
| Entry Threshold $118 x 52 | (6136) |
| Balance | 13864 |
| Claim @ 70% | 9705 |
| Subject to max $160 x 52 | $8320 |
They receive $8320, repay $5000 of their loan and keep the other $3320 for replacing their car.
The allowance will cover the additional regular and ongoing costs arising as
a direct result of the disability and so long as they fall within the defined
categories such as ambulance fees, clothing, day care, medical alarms,
medical fees, transport etc.
It does not cover one off costs, special equipment or major medical treatment.
There is no asset test but there is a gross weekly income limit of $478.37 ( single person)
and $694.81( married couple).
It is estimated that seniors receive in excess of $115m of disability allowance pa
but again there are believed to be many who are eligible but do not claim.
In addition, Disability Support Services are provided through the District Health Boards
covering residential care, home support, environmental support, carer support,
respite care, assessment and rehabilitation, and other support services.
To cover this you might consider using a lifetime loan to pay for
continuation of medical insurance(possibly with a higher excess)
or to pay privately for the necessary surgery.
There is no income or asset testing for state provided
major medical care or stays in public hospitals.
People aged 65 plus whose doctor is part of a Primary Health Organisation(PHO)
receive a subsidy on the doctor’s fee,
but this fee varies so people will still pay different amounts for consultations.
Taking an example of a single lady with non-exempt assets of $250,000
including the home and income of solely NZ Super would give-
| Income | 13302 |
| Less allowance | (1824) |
| Contribution to care | 11478 |
| cost of care | 33072 |
| Shortfall | $21594 |
But then she will have to contribute from teh income from the $150,000 assets
As stated above there are many who are entitled to benefits but do not claim them.
We recommend that you seek advice and the best place to start is WINZ on 0800 599 009.
Your Sentinel adviser and/or lawyer should also be able to help.
In considering the impact of the Lifetime Loan on state benefits
there are a number of key issues:-
a) Income tests- income definition- the definition of income for benefit purposes
is different to the income tax definition and is contained in
section 3 of the Social Security Act 1964 and includes:-
“Periodically” has been defined as not necessarily recurring at regular intervals
eg once a month or once a year) but rather as meaning happening as part of the regular
course of events and not happening on isolated occasions.
For the Lifetime Loan this means that sizeable lump sums being drawn on isolated
occasions are very unlikely to be viewed as income.
However smaller amounts drawn more frequently may establish a pattern or course
of events and being smaller amounts are more likely to be viewed as being
used for items normally paid for out of income.
A lump sum that has not been received periodically can be used for anything
including purchasing goods or services that are commonly paid for out of income.
It is only if sums have been received periodically that the further
me-related purpose test will be applied.
To safeguard clients against the risk of loan drawdowns being classified as income
(and thereby putting several valuable state benefits at risk) Sentinel has
b) Income Tests- income from investments
- the various income tests include income from investments but do not allow you to deduc
interest payable on loans.
We already advise against borrowing to invest as we do not believe it makes financial sense.
So here is another reason for in that even though interest may be deductible for
income tax purposes it is not deductible from income under the Social Security Act definition.
c) Income Tests- deferred payment
- as stated above the value of goods, services, transport or accommodation supplied
on a regular basis are included in income but that is only if they are provided for free
or below market value.
For example, your family may provide a house and not charge you rent.
However if you do agree to pay market value even though payment may be deferred until
your death this is not treated as income.
An example of this is the recently introduced council rates deferral scheme.
d) Asset or income deprivationbr
There are provisions in respect of gifting to others or selling assets for less than market value.
Amounts in excess of $5000 pa per donor over the previous 5 years may be added back to the
estate for asset testing.
Assets or income applied for your own benefit are not viewed as deprivation.
You will however need to be able to account for these items to show that they have not been
gifted as part of a deliberate running down of assets.
They have similar problems with their house as the Smith’s in 3the example above
Harold dies 5 years later aged 77.
After a further 5 years, Edna, now 78, needs a hip replacement.
Edna has arthritis which is now getting worse.
Edna dies 4 years later, aged 92, and leaves her family $350k.
and have to spend $18,000 on essential repairs and maintenance.
Like the Smith’s they receive Accommodation Supplement of $8320.
They spend $5000 on replacing their rather unreliable car,
5000 on a trip to Europe to visit Edna’s sister, who is very ill,
and the balance of $5320 goes to helping make ends meet as Edna has just
given up her part-time job and they are missing the income.
At this point the loan is around $47k and the house value $383k.
Edna takes a top-up of $15k to cover funeral costs and to help her to adjust to a lower pension
- even after getting living alone allowance she is having to manage on the lower
single person pension and her costs have not really changed.
If anything she needs to pay for things such as gardening that Harold used to do.
She thinks about moving house but she wants to stay close to friends and family.
Moving to a slightly smaller house and garden would not free up any money once
moving costs were taken into account and at her age she does not want the hassle.
When she finds out how long she might have to wait she decides to have the
operation privately and pays for it by a further advance from Sentinel of $15k.
She arranges for someone to come in once a day to help around the house and do the shopping.
This is paid for by disability allowance.
he manages for 5 years but then wants to modify the house, bringing her bathroom and bedroom downstairs.
She adds a further $50k to her lifetime loan to pay $25k for this and to make a gift of $25k to her family.
She also arranges with Sentinel to draw $5k over each of the next 5 years to fund further gifts to her family.
At age 88, 20 years after the initial loan was taken out, Edna can no longer manage at home
and following an assessment goes into residential care.
The loan is around $390k and the house value $796k.
The house is sold for $780k less $25k selling costs to net $755k.
The loan is repaid leaving $365k. Edna puts $10k into an exempt funeral plan leaving $355k.
Over 20 years the residential care subsidy asset limit has increased by $10k pa to $350k so
Edna’s contribution to her care costs is limited to her income plus $5k from her assets.
This is in addition to the $50k she has gifted over the previous 6 years. CONCLUSIONS
New Zealanders of all ages value their ability to live independently.
available state benefits, which will allow you to plan for your future,
whatever it may bring, with confidence.
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