Who knew a piece of paper could fill us with such terror? Finance expert Noel Whittaker reveals the correspondence retirees are terrified of receiving and what they can do about it.


The aged care system in Australia is one of the most complicated in the world, and the difficulty of interpreting the maze of rules and regulations is creating hell for people at one of the most vulnerable times in their lives.

A great example is the drama that occurs on the day a family receives what aged care guru Rachel Lane calls an “OMG letter”.

This applies to homeowners who have entered aged care.

For the purpose of calculating the cost of your aged care, your home is an exempt asset if a protected person is living there. A protected person includes your spouse or dependent child, a carer who has been living there for at least two years who is eligible for an Australian Income Support Payment, or a close relative who has been living there for at least five years who qualifies for an Australian Income Support Payment.

If there is no protected person living there, the home is assessed up to a capped value of $165,271.

But the rules are different from an age pension perspective. In Centrelink’s view, your home is an exempt asset for as long as you or your spouse lives there; it will start being assessed two years from the date the last one of you leaves. You don’t need to have a protected person (or in fact anyone) living in the home for the two-year exemption to apply.

So what is the dreaded OMG letter?It’s the letter you get from Centrelink or the Department of Veteran’s Affairs (DVA) when the two years is up. It will advise you that your former home is now included in your pension assets test and that you are now considered a non-homeowner. It will also let you know your new pension entitlement – often zero.

The letter typically arrives only a matter of days before the pension is cancelled: confused and panicked people exclaim, “Oh my God!”

The letter typically arrives only a matter of days before the pension is cancelled: confused and panicked people exclaim, “Oh my God!”

Imagine the confusion and stress felt by a protected person such as a child, who has been living in the home for many years, and who was told when Mum or Dad entered aged care that the house would be exempt for the entire time the protected person was living in it. And, while that was correct from an aged care perspective, it is not correct for Centrelink.

But here’s the good news: if you are receiving the OMG letter today it means you entered aged care in 2016 (or earlier) – before the changes to the pension assessment of the home and rent that occurred on 1 January 2017.

People who entered aged care before this date are in the unique position of being able to keep and rent their former home with the asset and income (rent) being exempt from their pension entitlement indefinitely. To have these special exemptions apply, you must be paying towards your aged care accommodation by daily payment AND renting the house. The rent doesn’t need to be commercial rates or on an arm’s-length basis: you can rent the home to a child or grandchild for a nominal amount. But you do have to rent the home.

Rent from the home will be included in the aged care means test, unless you entered care before 1 January 2016 (and meet the above criteria).

Whether you should sell your home, or keep it and possibly rent it, will depend on a range of factors, including your estate planning wishes, cash flow, tax consequences, and of course your ability to meet the cost of care. Keep in mind that the special rules that apply to the family home are unique to that asset, so make sure you take expert advice before you decide what to do. A mistake could be very costly.


Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au