Australia's aged care system is experiencing its most significant transformation in decades, with sweeping changes that took effect from November 1, 2025. The reforms, established under the Aged Care Act 2024, aim to create a more transparent, sustainable, and higher-quality care environment for older Australians.
Understanding the New Financial Landscape
For families with loved ones entering residential aged care, these changes introduce new financial decisions and additional costs. The government is shifting toward a 'user pays' model, meaning those with greater financial resources will contribute more toward their care costs.
With one in five Australians over 85 residing in residential aged care, and another one in five accessing home support services, understanding these changes has never been more critical. As life expectancy increases, these figures are expected to rise, making early planning essential for retiring Australians.
Breaking Down the New Costs
The new fee structure includes several components that families need to understand:
Basic daily care fee: All residents pay this fee, which covers everyday expenses like meals, cleaning, and laundry. The current rate is set at $65.55 per day, equivalent to 85 percent of the full aged pension.
Hotelling contribution: Depending on their income and assets, some residents may pay up to an additional $22.15 per day for daily living costs.
Non-clinical care contribution: This replaces the old 'means-tested care fee' and is calculated using the income and assets of both the resident and their spouse. It ranges from $0 to $105.30 per day and is subject to a lifetime cap of $135,319, equivalent to approximately four years of care.
Higher everyday living fees: These vary by facility and cover additional or premium services beyond the minimum standard of care.
Important Changes to Room Payments
Beyond ongoing care costs, residents must also consider accommodation payments through the Refundable Accommodation Deposit (RAD). Families have several options: paying the RAD as a full lump sum, opting for Daily Accommodation Payments (DAP) instead, or using a combination of both approaches.
A crucial change affects how RADs are handled. Previously fully refundable, providers can now retain 2 percent of the RAD per year, up to five years. For a $750,000 RAD, this means the provider could keep $15,000 annually, up to $75,000 total.
While DAPs avoid this retention, they represent a significant ongoing expense. For that same $750,000 room, the DAP would currently be $57,075 per year - and these payments are non-refundable.
Key Considerations for Families
Navigating aged care decisions remains complex despite the overhaul. Understanding exactly what you'll pay presents the first challenge, as the formulas calculating means-tested payments are complicated. Not all assets and income are treated equally - net rental income is counted as is, while income from financial assets uses deemed rates.
Some assets, including the RAD or the family home, can be exempt from the assets test entirely. This complexity means seemingly simple decisions can have unintended and often irreversible consequences.
Particular care should be taken when deciding what to do with the family home. Selling to fund care costs might seem logical but could reduce age pension entitlements and increase care costs. Alternatives include renting the property, opting for DAPs, or paying the RAD from savings, super, or investments - each with different pros, cons, and potential tax implications.
Families should also exercise caution with financial transfers. Gifts to parents are captured by means testing, affecting care fees and pension entitlements. Centrelink's gifting rules can capture money for up to five years, even if returned.
Since the RAD is returned to the resident's estate upon their passing, ensuring Wills are current is crucial. Establishing powers of attorney (both medical and financial) enables loved ones to make timely decisions, especially important as entering care often coincides with diminished capacity.
The overwhelming advice from experts: have a plan. Don't leave these decisions until crisis mode. Proper planning means understanding costs and coverage, taking timely action, making financially optimized decisions with clarity, and avoiding additional stress during an already challenging period.
Benjamin Lembo, a financial adviser at RSM Financial Services Australia in Melbourne, emphasizes that while aged care might seem distant, being prepared allows focus on obtaining necessary care when required.
