‘Once in a generation’ aged care reforms

The Government has legislated changes to the cost of residential aged care, for Australians entering care from 1 July 2025.

A female aged 65 today has a 59% probability of entering aged care at some point in their lifetime. For a 65-year-old male, the probability is 43%. At some point in our lifetime we are more likely than not to need care. Yet, few of us are proactively planning for it.

Confusion, concern, and complexity seem to be the common thread when we ask older Australians about aged care, making professional, financial advice absolutely critical.

Changes to accommodation payments

When entering residential aged care, you will need to agree on an accommodation price with the aged care facility. Whether or not you need to pay the agreed amount will depend on your means assessment.

You can pay the accommodation amount as a lump sum called a Refundable Accommodation Deposit (RAD) or as a Daily Accommodation Payment (DAP) which is a non-refundable daily payment, or a combination of both.

From 1 July 2025, aged care facilities will be required to retain 2% per annum of the RAD/RAC balance. The retention amount will be calculated daily and deducted monthly for a maximum of 5 years from when the RAD/RAC was paid.

The DAP will be indexed twice per year in line with changes to the consumer price index. The DAP will continue to be calculated based on the outstanding RAD and maximum permissible interest rate at the date of entry.

The daily accommodation contribution for low-means residents will not be indexed and will continue to be calculated based on their means.

Changes to ongoing care fees

In residential aged care, you will pay the basic daily fee to cover the day-to-day expenses such as meals, laundry and cleaning.

From 1 July 2025, the hotelling supplement contribution (HSC) will be introduced to fund day-to-day expenses in addition to the basic daily fee. The HSC will be payable depending on the resident’s assessable assets and income with a daily cap of $12.55.

In residential aged care, you may also pay the means-tested care fee. This fee is an additional contribution as determined by your means assessment. It is an ongoing fee towards personal and clinical care costs.

From 1 July 2025 the non-clinical care contribution (NCCC) will replace the means-tested care fee as a contribution towards non-clinical care costs. The NCCC will be payable depending on the resident’s assessable assets and income with a daily cap of $101.61.

The NCCC will also have a lifetime cap where it will be no longer payable when:

• the resident has been in aged care for more than four years; or
• the resident has paid $130,000 (indexed) in total NCCCs

Assessable assets and income for the HSC and NCCC will be the same as that currently assessed for the means-tested care fee.

Making sense of the numbers

The following example illustrates the difference in aged care fees for clients entering care before or after 1 July 2025.Hermione is a single Age Pensioner, aged 85 and entering residential aged care. She has recently sold her home to pay a $550,000 RAD. She has $700,000 in a bank account and currently receives an assets-test affected part Age Pension of $19,302 p.a.

As the RAD is an asset for aged care means testing, Hermione’s assessable assets are $1,250,000.

Due to the RAD being an exempt asset under social security means testing rules, her assessable assets are $700,000 for Age Pension purposes.

If entering aged care before 1 July 2025 Hermione’s means-tested care fee is subject to a lifetime cap of $82,018 (indexed) whereas from 1 July 2025, the non-clinical care contribution is subject to a lifetime cap of $130,000 or tenure in residential aged care of 4 years (whichever is earlier).

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