Australia has a world class aged care system, but it's under increasing pressure.
At a time when future funding of high quality, sustainable aged care is in transition, we face growing intergenerational inequities. Younger generations are expected to fund this societal burden, while at the same time facing a downward trend in wealth given the cost of living, housing and the emergence of new 'risk pools' due to an ageing population.
For the many Australians just like me, this is a difficult moral dilemma. My parents are approaching retirement age and, of course, I want them to have the best possible retirement, but I can’t see how the current set up will ensure that one day I too will enjoy a quality retirement.
To overcome such inequities and to ensure a financially sustainable aged care system, individuals need to contribute more to their own care costs. In addition, new emerging risks facing the "sandwich generation" need to be understood and managed. Insurance solutions can help by providing a more efficient means to fund the growing costs and risks facing our ageing population.
Australia's history of prosperity has seen community wealth increase. However, a 2014 Grattan Institute report notes older Australians are becoming richer, while younger generations like myself are going backward in real terms. Households of those aged 65 to 74 are $200,000 wealthier than those of that age eight years prior, yet those aged 25 to 34 are less well off than people of that age eight years ago. Home ownership is becoming almost impossible for my generation, down from 36% in 2002 to 25% today for those under 40.
This growing intergenerational wealth divide is occurring at the same time as a review into the future of funding quality and sustainable aged care. In Australia, and other global markets, it is clear additional funding options are required to ensure aged care systems respond to the changing needs of an ageing population. Families and the public purse carry the vast majority of the burden – in Australia alone the Government’s share of the cost of care is 94% given the concessionally treated means testing arrangements.
There is no doubt younger generations must play a role, but to remove some of the inequality all individuals should make equitable and sufficient contributions to care as they age. Current sources of funding and means testing arrangements fail to see those who need care making equitable contributions. To overcome these challenges, policy reform is required to ensure a just and financially sustainable outcome for both government and younger generations.
The 2017 Aged Care Legislative Review, Chaired by David Tune AO, reviewed the effectiveness of recent reforms to the aged care system, forming 38 recommendations for future reform to improve the quality and sustainability of the system. The review called for changes to the current means testing framework, in particular full inclusion of the value of the family home and changes to the lifetime consumer funded caps. While a full Government review is pending, they have immediately ruled out changes to means testing and lifetime caps.
Though making such changes can be politically sensitive, the Government’s ruling out of changes to the means tests involving the family home shuts down much needed discussion on how to fund the system now and in the future. As it stands, only $162,000 of the value of your home is included in the means test for residential aged care, when in Sydney alone the average price for a home is more than $1 million. How is this fair? It is clear change is required.
Like many older Australians, the home comprises the majority of my parent's wealth. As a result they will contribute relatively less to the cost of care than a person whose wealth is in other types of assets. Now whilst this is great for my parents, it promotes inequities in the system in particular for those individuals living in high home value areas such as Sydney when compared to rural areas.
It is not unjust that older generations such as the Baby Boomers enjoyed free education, strong economic and employment growth, or the significant boom in housing wealth. However, it does become inequitable or unjust when the holders of this wealth rely on society to fund both formally and informally their care needs when they can contribute more financially. While changes would be unpopular, we should ask a baby boomer would they like to trade places with their son or daughter today, I suspect the majority would say no.
Younger working generations are currently not only funding most of the burden, they are also subject to new risks, such as informal care, which will limit their ability to generate wealth. Research by Swiss Re's Sydney team showed almost 60% of people had already provide informal care to family members, with 75% believing the provision of this care will impact their own retirement savings.
The Government needs to act on the Tune Report recommendations and remove some of the concessional means testing, but this must be coupled with better incentives for people to save for their own aged care needs. A failure to act will be failing the younger generations.
Should this occur, the life insurance industry has an important role to play in providing financial security and more efficient forms of savings for ageing risks. The industry is primed to provide solutions to not only older people, but also to the working 'sandwich generation' who are facing growing intergenerational inequality, such as the provision of informal care, lost inheritance or early retirement due to poor health, impacting the ability to achieve an ideal, independent retirement.
While baby boomers are enjoying their retirement, younger generations will to struggle to afford a home, struggle to generate enough savings to fund their own retirement and will not be able to rely on a government safety net to support them.
These changes will unfortunately impact my parents in their retirement. I will still be there to support them regardless of the circumstances, I just hope it is amidst a system that is fair and that sees all generations play a part in supporting the prosperity of our community.
Category: Funding longer lives: Long-term care, Longevity risk, Pension/retirement
Location: Sydney, New South Wales, Australia