Major changes to residential aged care have now come in effect, reshaping how accommodation payments are calculated, indexed and refunded.
Since 1 November 2025, new rules have applied to people entering care, affecting long-term costs and financial planning. While the overall structure of aged care fees remains familiar, the reforms introduce important differences in how payments work over time.
How residents are assessed
People entering aged care after 1 November 2025 will continue to be assessed based on their financial means to determine whether they qualify as low-means residents or accommodation payment residents.
This assessment still compares a person’s means-tested amount with the maximum accommodation supplement in place at the time they enter care. Those below the supplement are classified as low means, while those at or above the threshold are required to contribute more toward accommodation costs.
This part of the system remains similar to the previous rules but will be applied under updated rules.
Accommodation payment options
Residents retain the same broad payment options. Accommodation can still be paid as a lump sum, known as a Refundable Accommodation Deposit (RAD); as a daily payment, known as a Daily Accommodation Payment (DAP); or through a combination of both.
Low-means residents continue to have similar arrangements available through Refundable Accommodation Contributions (RACs) or Daily Accommodation Contributions (DACs).
Although these payment methods are unchanged, the way they behave over time has shifted under the reforms.
Retention amounts reduce refundable balances
One of the most notable changes is the introduction of retention amounts on lump-sum payments.
Aged care providers are now permitted to deduct a retention amount of up to 2 per cent per year from RAD or RAC balances. The deduction is calculated daily and can apply for a maximum of five years, after which no further retention amounts can be charged.
This change means that families should now expect the refundable balance returned when a resident leaves care to be lower than under previous rules.
If a resident moves between aged care homes, the five-year retention period does not reset, ensuring deductions cannot continue indefinitely.
Daily payments now indexed to inflation
Another key reform is the indexation of daily accommodation payments. DAP rates are now adjusted twice each year, on 20 March and 20 September, in line with movements in the Consumer Price Index (CPI). This introduces a new element of variability, as daily fees may gradually increase over time in response to inflation.
For residents who choose a combination of RAD and DAP, the interaction between payments is also more complex. Certain deductions from RAD balances may affect future DAP calculations and indexation, although retention amount deductions themselves do not increase future DAP indexation.
Grandfathering for existing residents
People who were already living in aged care before 31 October 2025 generally remain under the previous rules, unless they actively choose to opt into the new system.
This grandfathering arrangement provides certainty for existing residents but creates a clear divide between the old and new frameworks.
What the changes mean in practice
For those entering aged care today, the financial implications are significant. Accommodation costs may be less predictable due to CPI-linked increases, and lump-sum payments are no longer fully refundable in many cases because of retention deductions. As a result, generating reliable income and managing assets effectively is more important than ever when planning how to fund aged care.
With Australians living longer and aged care costs continuing to evolve, the recent changes reinforce the need for early planning and clear financial advice. Understanding how payment structures, indexation and retention amounts work together is now essential for individuals and families preparing for residential care.
Authored by Luke Robson, HLB Mann Judd Brisbane.