Q & A

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Cost of nursing home

My mother is 77 years of age and has been in receipt of a non-contributory widow's pension for more than 20 years. Until recently, she had been living alone in the family home. However, she suffered a bad stroke and after many months of trying to cope at home with family/carer help, she decided that it would be best to live in a nursing home. This nursing home is rather expensive because she needs 24-hour care and it costs about £1,900 (#2,412) per month. She has sold the family home to pay for her future care in this facility.

The house sale was completed a month ago and the family is trying to find the best possible investment for this money for her to make it stretch as long as possible - at least eight to nine years - after which time we don't really know what we'll do. The house was sold for £200,000.

Social welfare has advised us now that mum will have to be means tested and could risk losing her pension altogether or having it significantly reduced because she now has an asset.

She does not have any other assets and is very upset at this as the house sale money will remain untouched except to pay her nursing home bill every month. She used her pension money as spending money for normal living expenses. We are very concerned that if the pension is no longer allowed, it will severely affect her financial position and future peace of mind. Is there any solution to this predicament?

Ms C.McC., e-mail

I'd like to be able to say that everything will be all right, but I'm afraid the threat to your mother's pension is very real. As you are probably aware, the means test is nothing new. As someone in receipt of a noncontributory widow's pension, your mother's means were always assessed as part of the process in determining her income in the same way as happens with all noncontributory payments from the Department of Social, Community and Family Affairs.

The difference is that in assessing such means, one's family home is excluded from the equation. Once the home was sold, the money accruing from the sale now does come into the reckoning in assessing the pension. There is, however, one bit of positive news. If someone is moving into nursing home care, the first £75,000 of the value of the home or the proceeds of sale of the home will not be included in assessing weekly means.

Assessing capital sums like the £200,000 from the sale of the house is done using a special formula. Before using the formula, you need to discount £75,000 as explained above, leaving £125,000. Under the formula, the first £2,000 is excluded from the equation. The next £20,000 is assessed at a rate of 7.5 per cent, producing a figure of £1,500. The balance is assessed at 15 per cent. In your mother's case, this would yield £15,450 - the balance of £103,000 x 15 per cent = £15,450.

The formula's yield from the capital investment - £15,450 + £1,500 = £16,950 - is then divided by 52 to produce the weekly notional means. In this case, that produces a figure of £325.96.

Means of up to £6 a week will not in any way affect the pension; thereafter the pension is reduced as weekly means rise. Once you go over £76 a week at current pension rates, you lose your entitlement to a non-contributory pension. In your mother's case, the figures show she would be well in excess of her allowed means under the means test and would therefore not be entitled to any payment under her noncontributory widow's pension.

Just to confuse you further, the whole formula changes this October. Thereafter, you work out your weekly means by assessing nothing on the first £10,000 of capital, £1 per thousand on the next £10,000, £2 per thousand on the subsequent £10,000 and £4 per thousand on anything above that.

Under this new formula, your mother's weekly means would be assessed at £410 per week, leaving her further away from a noncontributory pension.

The obvious answer would have been to avoid selling the house as it would not be assessed as means being the family home. However, you are in a catch-22 situation because the Department of Health does include the value of the family home, when assessing ability to contribute to nursing home costs, once that home is worth more than £75,000.

This, of course, is a ridiculous figure because in many parts of the State, there is no such thing as a home valued at less than £75,000, effectively nullifying the exemption.

The Department assesses both means and medical requirements, it tells me. If you qualify for maximum assistance after these tests, you would receive £120 a week. There are two lesser bands - £95 a week and £75 a week. Even at the maximum, your mother's £1,900-a-month care bill would be far in excess of the subvention. With a house valued at £200,000, your mother would not have qualified under means anyway, forcing her to sell the property one way or the other.

That then leaves you with the £200,000 and the question of how long it will last. If the cost of the nursing care were to stay at £1,900 per month, the capital itself would last just over eight and a half years. But there are several other things to factor in - the first being the certain loss of pension. At current rates, your mother would receive £73.50 a week, plus an age allowance of £5 for being more than 66 years old and a living-alone allowance of £6. Replacing this income in addition to the costs of the nursing home bring her monthly bill up to £2,267.

On that basis, again assuming no increases, the capital sum would last between seven and eight years.

Of course, there will be increases both in the cost of care and in social welfare increases foregone. Generally medical inflation is outstripping the consumer price index quite markedly and, with nursing-home beds in scarce supply, that is likely to continue to be the case for your mother's care bill. In addition, inflation will affect the cost of those normal living expenses outside the care and accommodation provided by the nursing home.

Naturally as the capital sum is eroded, a time will come when it is low enough not to be taken into account as means for the purposes of nursing home care or the non-contributory pension. Even then, the subventions would not meet you mother's bills.

Quite simply, if you are talking about a period of nine years, you are looking at the capital growing by almost 50 per cent allowing for a 5 per cent rise in nursing home costs and a 3 per cent rise in other bills. As the capital will be diminishing all the time as bills are paid, meeting this income requirement will be a tall order in the current environment.

I would suggest you get some independent financial advice, preferably for an upfront fee, on how to ensure your mother's income requirements are best met from the current capital, bearing in mind that while your mother might not survive as long as nine years, she might survive a good while longer.