The aged care system in Australia is about to undergo significant changes, effective from 1 January 2025. These changes will impact the financial arrangements for aged care residents, making it crucial for individuals and families to stay informed and plan ahead.
Key changes
Increase in the maximum* Refundable Accommodation Deposit (RAD)
- The maximum RAD, currently set at $550,000, will increase to $750,000.
- This cap will also be indexed annually from 1 July 2025, meaning it will continue to rise over time.
Introduction of RAD retention
- From 1 July 2025, providers will be allowed to retain 2% of the RAD annually for up to five years, totalling a maximum of 10% of the RAD for any given resident.
- This retention will apply to new RAD agreements from 1 July 2025.
Increase in the Maximum Permissible Interest Rate (MPIR)
- The MPIR, used to convert a RAD into a Daily Accommodation Payment (DAP), will rise to 8.42% for the quarter starting 1 January 2025.
- This is an increase from the current rate of 8.38% and is likely to increase the daily costs of accommodation for residents choosing to pay via DAPs instead of a RAD.
Practical implications of these changes
Higher accommodation costs
The increase in the RAD and MPIR is likely to make aged care accommodation more expensive for many individuals. Let’s break it down with an example:
- Current Scenario (MPIR: 8.38%): A room with a RAD of $550,000 converts to a DAP of $126.27/day or $46,090/year.
- From 1 January 2025 (MPIR: 8.42%): A similar room, now with a RAD of $750,000, would convert to a DAP of $173.01/day or $63,150/year.
This represents a potential increase of $46.74 per day or $17,060 a year for residents opting to "rent" the room rather than paying the RAD upfront.
Impacts on residents forced to move
- Room Changes or Provider Transfers: Residents who need to move rooms (e.g., due to increased dementia care needs) or switch providers (e.g., due to closures) may face the current MPIR at the time of their move, potentially increasing their accommodation costs.
- Low-Means Residents: For those classified as low-means, the MPIR will only reset if they switch providers, adding further complexity to financial planning.
Increased preference for paying a RAD
With rising MPIR rates, families may increasingly prefer to pay a Refundable Accommodation Deposit (RAD) instead of ongoing DAPs to minimise the financial burden over time. However, this will require careful cash flow and asset management.
What can you do?
Seek expert advice
Navigating these changes can be complex, particularly when it comes to understanding the financial implications. An accredited Aged Care Specialist can help you assess your options and develop a tailored strategy to manage aged care costs effectively.
Plan ahead
If you or a loved one is considering entering residential aged care, it may be advantageous to act before 1 January 2025 to avoid the impact of these changes. Similarly, if a move is unavoidable, understanding the timing and financial implications can make a big difference.
Review your financial strategy
Whether you choose to pay a RAD, a DAP, or a combination of both, it’s important to ensure your approach aligns with your financial goals and cash flow needs. Consider discussing options with a financial planner experienced in aged care.
How we can help
Navigating aged care is challenging, but you don’t have to do it alone. As an accredited Aged Care Specialist, I can help you understand these changes, assess your options, and plan for the future with confidence.
If you or someone you know is considering moving into residential aged care before 1 January 2025, or needs assistance understanding the implications of these changes, please don’t hesitate to reach out.
Sophie Doyle (AR#000470612) is a Retirement and Aged Care Specialist at Morgans Financial Limited Gosford (Morgans AFSL 235410 / ABN49 010 669 726); with a passion for assisting families to make more informed financial decisions, as they navigate their way through retirement and aged care.
