Understanding Aged Care and the Strategy Implications

Australia's ageing population is creating extra demand for Aged Care services. As such, we are seeing more clients (and most particularly their Powers of Attorney - often their adult children) reach out for financial advice.

Background information

From 1 November 2025, Aged Care fees are changing to enable the system to be more sustainable, which in most cases means more expensive. Entrants prior to this date can typically continue with grandfathering of the existing aged care fees rules should they wish.

The current fees that entrants pay include:

• Accommodation Payments: Payable as a refundable deposit or daily payment

• A Basic Daily Fee: Payable by all residents

• A Means Tested Care Fee: Payable by residents who have the means

• Extra/Additional Services Fee: Payable where extra/additional services are taken

The following table illustrates these fees:

Source: Challenger, rates as of March 2025

However, from 1 November, some of the changes include:

• Maximum accommodation price increased from $550,000 to $750,000 from 1 January 2025

• Daily accommodation payments will be indexed

• Aged Care facilities required to charge retention amounts

• Consider phasing out RADs by 2035 subject to independent review in 2030

• Aged Care facilities required to retain 2% p.a. from RAD/RAC

• Amounts deducted will not increase the DAP/DAC

• The means-tested care fee will be split into a Hotelling Supplement Contribution and a Non-Clinical Care Contribution show below:

Source: Challenger

The following graph shows that fees for 'middle Australia' are expected to increase the most:

Source: Challenger

Areas Financial Planners Add Value

We find that we provide the most value to clients by:

• Providing Clarity: This could be by explaining all the rules, strategy options and completing modelling based on different scenarios clients wish/need to see.
  

• Providing Support: This could be by explaining how clients can:
  

  • Access Aged Care Assessments.

  • connect with professionals to place people in a preferred accommodation.

  • How to update Centrelink/My Aged Care information.

  • How to fulfil their duties as a Power of Attorney.
    

• Strategy Development: Some of the common examples include:
  

  • Whether to pay the RAD (Refundable Accommodation Payment) or DAP (Daily Accommodation Payment): Clients will be offered the option to pay a refundable lump sum or an ongoing amount.
    

  • Whether/when to sell the family home. We particularly see this as relevant when a 'protected person' lives in the home or when the 2 year principal home exemption is set to expire.
    

  • Whether to maintain or switch existing assets: These often have different tax, estate planning and aged care or Centrelink assessment differences.
    

• Investment Advice: When a client is entering aged care, their investment timeframe is often substantially less than when they were in retirement phase. For this reason, it may be appropriate to:

• Change the investment mix to reduce or eliminate volatility or capital loss risk.

• Change the investment mix to obtain investments with more favourable Aged Care or Centrelink assessments.

• Change the investment mix to reduce the amount of taxes that could otherwise be paid, for instance on the taxable components of superannuation or capital gains tax.

Aged Care is a complex, time consuming and often emotionally draining task, and we are here to help:

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