Proposed new residential aged care rules starting in Australia next year will increase the level of contributions from wealthier families while ensuring medical care remains affordable for people with lower means.

The recommendations from the Aged Care Taskforce will come into effect from 1 July 2025 and focus on how wealthier Australians can contribute to the overall cost of their residential aged care and home-care services in retirement.

Ultimately, these reforms will increase the financial obligation on wealthier families while aiming to make the aged care system more equitable for everyone. With bipartisan support, the changes are expected to be enacted, and anyone entering care after 1 July next year will need to navigate these new rules carefully to manage their financial obligations effectively.

Key changes

One key change is to the hotelling supplement, which is a top-up payment previously paid by the Government at a rate of $12.55 a day. This payment will now be means tested – anyone with more than $238,000 in assets, or who earns $95,400 in annual income, or a combination of the two, will have to start contributing to the cost.

In addition, a 2 per cent exit fee on Refundable Accommodation Deposits (RADs) will also apply, on top of the Daily Accommodation Payments (DAPs) which will be indexed twice a year, adding uncertainty to future costs.

Another change will lower the asset threshold at which maximum fees are applied, from approximately $2 million currently to $1 million. This means that families who sell their homes or have significant assets may face higher care costs. The means-tested care fee has a lifetime cap of $82,018, while the new non-clinical care contribution (NCCC) introduces a higher lifetime cap of $130,000, or four years in care. Additional daily living costs will also rise under the new framework.

For those considering aged care, it may be advantageous to enter before 1 July 2025, as existing residents will be grandfathered under the current rules.

The need for financial advice becomes more critical under the new rules as many people will need to seek guidance on whether to pay upfront through a refundable accommodation deposit (RAD) or through daily payments (DAP). RADs, while refundable, now come with a 2 per cent annual retention fee for up to five years.

Selling or retaining the family home is another decision potentially impacted by these changes from the Aged Care Taskforce; retaining the home can offer pension benefits for two years post-admission to a care facility whereas selling it might affect means testing at a greater rate than that which previously applied.

Authored by Luke Robson, HLB Mann Judd Brisbane. This article was first published in the Summer 2024-25 issue of Financial Times.