As Australia’s aged care system evolves to meet the growing needs of our ageing population, significant reforms to aged care fees are set to take effect from 1 July.
These changes aim to improve the financial sustainability of the sector, with over 40% of aged care providers currently operating at a loss. For families supporting loved ones through aged care, understanding these fee changes is essential to planning effectively and avoiding financial stress.
Why are aged care fees changing?
The aged care system in Australia is under pressure, with rising demand and increasing operational costs. In response, the government is introducing a new funding model designed to ensure quality care can continue to be delivered across the country.
It is important to note that the changes will only affect new aged care residents entering care from 1 July 2025. The ‘no worse off’ principle guarantees that if you are receiving care before this date, your fees will continue to be assessed under the existing rules, unless you leave aged care or transition to a different provider.
Key changes to aged care fees from 1 July
- Refundable Accommodation Deposits (RADs)
Aged care facilities will now retain 2% of the RAD per year, for up to five years, from the time the deposit is paid. Previously, the RAD was refunded in full (less any agreed deductions), but this change introduces a capped retention amount of up to 10% over five years, reducing the refund amount families may receive upon exiting care. - Non-Clinical Care Contribution
This fee replaces the Means-Tested Care Fee and covers the cost of non-clinical services like social support, lifestyle activities, and administration. It is calculated based on an individual’s income and assets, and is capped at a daily rate of $101.61, with a lifetime limit of $130,000 or four years, whichever comes first. - Hotelling Supplement Contribution
A completely new fee, this supplement covers daily living expenses such as cleaning, meals, and laundry — over and above the basic daily fee. Like other fees, it is means-tested with a daily cap of $12.55, ensuring individuals with higher financial means contribute more toward the cost of their accommodation. - Home Care Costs
The current Home Care Packages (HCP) & Short-Term Restorative Care (STRC) programs are being replaced with the Support at Home Program. This new program aims to provide better access to services, products, equipment and home modifications to help older Australians remain healthy, active and socially connected. The Support at Home program is a means tested fee as well.
These reforms are intended to better align fees with the actual cost of delivering care, whilst maintaining affordability through caps and means testing.
What remains the same?
While these changes are significant, several elements of the aged care system remain unchanged:
- Accommodation Fees: These cover the cost of living in a residential aged care facility. They can be paid as a lump sum (Refundable Accommodation Deposit), in periodic payments (Daily Accommodation Payment DAP), or a combination of both.
- Daily Care Fees: A basic daily fee covers general services such as meals and laundry. Additional fees may apply for higher levels of care or extra services.
The below example illustrates the difference in aged care fees for people who enter aged care before or after 1st July 2025. John is on the single aged pension, age 84 and needs to enter aged care. His pension is $19,302 p.a. and he is asset tested. He has $700,000 in the bank plus he sold his home to pay for the RAD of $550,000.
Total assets for aged care asset testing are $1.25 mill as the RAD is included.
The RAD however is exempt under the social security means testing rules, so his assessable assets are only $700,000 for the aged pension.
| Fee Type | Pre-1 July 2025 Rules | Post-1 July 2025 Rules |
| Pension | $19,302 | $19,302 |
| Basic Daily Fee | $23,203 | $23,203 |
| Hotelling Supplement Contribution | Not applicable | $4,581 |
| Means-Tested Care Fee / Non-Clinical Care Contribution | $18,035 | $36,923 |
| RAD Retention Amount (only applies for 5 years) | $0 | $11,000 |
| Total (first year) | $41,238 | $75,707 |
The importance of professional financial advice
Aged care decisions have long-term financial implications, making professional financial advice invaluable. Aged care specialists can assist with:
- Understanding government funding options and eligibility criteria.
- Structuring finances to reduce costs and maximise entitlements.
- Navigating the impact of aged care costs on pensions and assets.
- Estate planning to ensure financial security for the future.
Many families have pressing questions when navigating aged care, such as:
- How to structure and minimise fees to maximise entitlements?
- What are the implications of selling or renting the family home?
- Where is the best place for my loved one?
- How can we afford to pay for care?
- What is a Refundable Accommodation Deposit (RAD) and an Aged Care Assessment Team (ACAT) assessment?
- How do we complete an income and asset test?
Financial advisers can help families answer these critical questions and create a plan that aligns with both their financial circumstances and care needs, ensuring peace of mind during this significant life transition. The way assets are structured and how aged care is paid for can have significant financial implications, up to $100,000 over 5 years if comparing best to worst decisions. Financial advice can help you avoid the pitfalls.
Looking ahead
Caring for an ageing loved one involves careful planning, both emotionally and financially. Understanding the available care options, managing the associated costs, and seeking professional advice can help families make informed choices that ensure the best possible care. While the journey may be challenging, proactive planning and support can make all the difference in providing comfort and security for loved ones in their later years.
