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New policy … important reforms move the sector to a more user-pays, means-tested model. Photo: Louise Kennerley

The strategy: To understand how the government's aged-care reforms will work.

Will they affect me? If you're already in the aged-care system, the government has said its move to more of a user-pays, means-tested model will not affect you. But for those who may need aged care in the future, several experts have said aged care will need to become a greater part of retirement planning. Along with providing a retirement income, the need to set aside a lump sum for aged care in later years needs consideration.

How will it work? The intention is to make it easier for older people to stay at home longer; to spread aged-care costs more fairly; and to increase funding for care for people with dementia.

The government will increase the number of home-care packages it offers from 59,876 to 99,669 over the next five years, make it less fragmented and the packages more ''consumer directed'' so users can decide what help they need. New recipients from June 30, 2014, will face a new means-tested care fee on top of the existing basic fee. The government says no full pensioner will pay a care fee under the new arrangements but some part-pensioners and non-pensioners will pay more.

Your home and other assets will not be included in the means test and an annual cap of $5000 for part-pensioners and $10,000 for self-funded retirees will apply. There will also be a lifetime cap of $60,000 on care fees.

What if I need formal aged care? The plan is to create more aged-care places by increasing the maximum government aged-care supplement, which it pays to providers on behalf of people who can't meet the full accommodation cost. Residents will be able to pay for their aged care through a lump sum, periodic payments or a combination of both. A new cooling-off period will mean that residents will not need to decide how they intend to pay for their accommodation until they have actually entered care. Aged-care providers will be required to insure any lump-sum bonds they hold and will not be able to retain any of the actual bond.

Means testing will be changed and the current income and assets tests combined so that anomalies (such as asset-rich, income-poor residents paying for their accommodation but paying nothing for their care) are removed.

Under the new means test (from July 2014), only income above the maximum income for a full pensioner - currently $23,543 for singles and $23,075 for one of a couple - will count. There is also an asset-test-free threshold of $40,500 excluding the family home. If you have income or assets above these, fees will apply but they can't exceed your care costs. An annual cap of $25,000 and a lifetime cap of $60,000 will apply.

The family home will be means-test exempt if occupied by a ''protected person'' (usually a spouse); if included, its value will be capped at $144,500 (2012 prices) and only counted in determining ability to pay for the accommodation. Full details can be found at at health.gov.au.

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