Fair Deal - Treatment of Pension Fund?

G

Gordon Gekko

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Hi,

Within the Fair Deal scheme, how is a pension fund treated? i.e. one that hasn’t been accessed.

And how is an Approved Retirement Fund (ARF) treated? Does the 4% mandatory distribution counts as income with the fund itself ignored?

Many thanks,

Gordon
 
Potential info on your second question here:

Home economics: Our property finance expert answers your questions

Q My father is going into a nursing home probably early next year, which the family is currently researching. We are trying to work out whether to do this via Fair Deal, but we are confused about the details of his contribution. His income from the State Contributory pension and an ARF (approved...
www.independent.ie
 
Hi Gordon

When we discussed this previously, the conclusion seemed to be that an ARF is treated as an assessable asset and drawdowns are treated as assessable income.

ARF v Annuity......Fair Deal implications

Is there any research available in relation to the Fair Deal implications of the ARF v. Pension decision?
www.askaboutmoney.com
In other words, it's double counted and it may be better to purchase an annuity if somebody is going to avail of the fair deal scheme.
 
I think the questions asked at the end of the thread quoted by Sarenco (post no. 28) have not been answered. Hard to understand what the precise position is without knowing the answers to these questions.

I would have little faith in Sinead Ryan's article - some of the comments are clearly nonsense.
 
Am I oversimplifying it to think as follows:

- Say a nursing home costs €60k a year
- The net cost to the person is €36k a year after tax relief
- It makes no sense to consider Fair Deal if 7.5% of your assets until death plus 7.5% of your home for three years plus 80% of your income is a “big number”.
 
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Nobody pays more than the actual cost of the nursing home care. The benefit of applying for FD anyway is that the 3 year limit on PPR commences at that time.
Also, ARF will be assessed at 7.5% p.a. Drawdown assessed as income, i.e. 80% recouped. The ARF will then be less for following year's assessment.
 
Gordon Gekko said:
Am I oversimplifying it to think as follows:

- Say a nursing home costs €60k a year
- The net cost to the person is €36k a year after tax relief
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You may have oversimplified it a little but more or less that is correct. However the relief is at your rate of IT so unless all of that 60k is in the 40% tax bracket then the net cost will be a bit higher. And probably more important but missed by many is that the tax relief is available to whoever pays the nursing home fees, not the person receiving care. So it could be a child, sibling, spouse, friend...anyone

Another thing to bear in mind is that the amount that is calculated from the assessment is still subject to the same tax relief. If it is assessed that you can pay 50k, the state will cover the remainder and you or whoever pays can claim tax relief on the 50k. After 3 years when the PPR is excluded, this would get better. And the financial assessment can be done at 12 month intervals which would make sense if the ARF is reducing significantly

The ARF is a peculiar one but it does make some sense. The asset should be assessed as it will eventually form part of your estate unlike an annuity. The distribution is then assessed as income so you are effectively taking an 11.5% hit on the ARF (7.5% asset + 80% of 5% distribution).

If you have choice between annuity and ARF, I still think it would make more sense (for your estate) to choose the ARF. Realistically with life expectancies, it is likely that there will be something left over in your estate from the ARF. Choosing an annuity that will only pay ~3% for a few years will reduce the assessable income but you are just handing away the rest of the pension pot

This calculator MyFairDeal seems to give a reasonable indication of what you can avail of. There are a few accountants/advisors around the country who seem to specialize in the FDS so it is probably worth your while paying a small fee to get the best and most relevant advice on this
 
If Fair Deal makes no sense in your case now, it might make sense in the future.

Apart from the basic nursing home cost, there are many additional expenses, most homes charge an additional activity fee, typically €70 weekly. There is also hairdressing, toiletries, clothes, shoes etc. Other possible expenses could be chiropody, physio, consultants, dental etc, none of which is covered. One of my relations went through 2 specialist chairs that cost nearly €5k each. If there is private health insurance, that could be another few grand a year.

Then there is the family home that in many cases sits there empty. It will have to be maintained, insured etc. Alarm monitoring, heating on for a few hours daily during winter to prevent burst pipes mould etc. Even with low usage standing charges make gas / electric bills significant.

You won’t see the money go.

You can apply for Fair Deal at any time, and nursing home care paid for privately will be allowed against the 3 year cap on the family home.

So say after 3 years of paying privately, savings might have reduced substantially and with the house being disregarded from the financial assessment, Fair Deal might make sense at that stage, or at some later stage again.

It is worth bearing in mind.
 
Thanks. For the avoidance of doubt, I’m not asking for myself or for a family member.

I’m just trying to get my head around it.

I guess the part I’m unclear about is the point at which it ceases to make sense for someone.

e.g. if someone’s retirement income is €100,000, their house is worth €1.5m, they’ve an ARF worth €1.5m, and savings/investments of €1m, surely they’re better off just paying the €36k themselves?
 
Also a lot of Nursing homes have a cheaper rate if you're on the Fair Deal scheme. So even if you end up paying the full amount of the Fair Deal rate, you could save a couple of hundred a week compared to the full Private Price.
 
Yes. At that level of income, FD is unlikely to be of any value.
 
Slim said:
Yes. At that level of income, FD is unlikely to be of any value.
Click to expand...

Thanks.

But based on some earlier posts, I’m still unclear.

If the State just takes the cost of the care, does it really matter?

Say the person has €100k of pension income, they’ve a home worth €1m, and the care costs €60k a year.

Does the State just take the €60k?

i.e. not the full €80k (80%) or any of the value of the house?
 

Yes, the fair deal scheme pays the difference between the cost and the assessment of what you can afford. If you can pay the full cost, the HSE does not pay anything or take anything from you
 
No, you pay the nursing home direct. FD will not come into it.
 
Hi Gordon,

I think you may be overcomplicating it a bit. The state doesn't 'take' anything, they pay the difference between what you can afford (based on assessment) and what the cost of the care is. You can find the published costs here but it doesn't matter whether the home costs €60k or €80k, if you have been assessed as being able to afford €40k, then the state picks up the difference.

In your first example, that individual would simply be too wealthy to avail of the FDS because of both the high income and high assets.

In your second example, that individual would likely be entitled to some support after year 3 when the PPR is excluded.

The income assessed is NET income so even with a gross income of 100k you could still be eligible for some support through FDS. After tax and allowable expenses (health, medical, dependandts etc), your net income could be 50k. It is 80% of this number that is used for assessment, not 80% of your gross income.

I think your best bet is to actually go through and complete an application form, they are not that difficult and once you've done it you will get a better understanding of how it works. Hope this helps
 
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