Key Takeaways
- Significant aged care cost changes take effect from 1 January 2025.
- Maximum Refundable Accommodation Deposit (RAD) rises from $550,000 to $750,000 and will be indexed annually.
- RAD retention allows providers to retain 2% per year of the RAD for up to five years.
- Maximum Permissible Interest Rate (MPIR) increases to 8.42%, affecting daily accommodation payments (DAPs).
- Professional planning and timely decisions can reduce financial impact on residents and families.
Overview of Aged Care Cost Changes
Australia’s aged care system is undergoing important financial changes from 1 January 2025. Residents and families should plan ahead to understand and manage the financial implications of these changes.
Key Changes
Increase in Maximum RAD
- Maximum RAD increases from $550,000 to $750,000
- Indexed annually from 1 July 2025
Introduction of RAD Retention
- Providers can retain 2% of the RAD annually for up to five years (max 10%)
- Applies to new RAD agreements from 1 July 2025
Increase in Maximum Permissible Interest Rate (MPIR)
- MPIR rises to 8.42% from 8.38%
- Impacts DAPs for residents choosing to pay daily instead of upfront RAD
Practical Implications
Higher Accommodation Costs
- Example: RAD of $550,000 at 8.38% MPIR = $126.27/day ($46,090/year)
- New RAD of $750,000 at 8.42% MPIR = $173.01/day ($63,150/year)
- Increase of $46.74/day or $17,060/year for DAP-paying residents
Impacts on Residents Forced to Move
- Room Changes or Provider Transfers: May face current MPIR at time of move, increasing costs
- Low-Means Residents: MPIR reset only if switching providers
Increased Preference for Paying RAD
- Families may prefer upfront RAD payments to minimise long-term costs
- Requires careful cash flow and asset management
What You Can Do
Seek Professional Advice
- Accredited Specialists can offer Aged Care Financial Advice, assess options and develop strategies tailored to individual needs
Plan Ahead
- Consider entering aged care before 1 January 2025 if possible
- Understand timing and financial implications if a move is unavoidable
Review Your Financial Strategy
- Ensure RAD, DAP, or combination aligns with cash flow and long-term goals
- Discuss options with an aged care financial planner
Get Professional Support
Navigating aged care changes can be complex, but you don’t have to do it alone. I can help you understand the changes, evaluate options, and plan confidently for the future.
Contact Sophie Doyle today to discuss aged care strategies or financial planning for a move into residential care.
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.
FAQs for Aged Care Cost Changes
When do the new aged care changes take effect?
The changes take effect from 1 January 2025, with RAD indexing starting 1 July 2025.
What is the new maximum RAD?
The maximum RAD increases from $550,000 to $750,000 and will be indexed annually.
What is RAD retention and how does it work?
Providers can retain 2% per year of the RAD for up to five years for new agreements.
How does the MPIR increase affect daily accommodation payments?
MPIR rises to 8.42%, increasing DAP costs for residents paying daily instead of upfront.
How can I reduce the financial impact of these changes?
Seek advice from an accredited Aged Care Specialist, plan ahead, and review your financial strategy to align RAD and DAP payments with your goals.
