Following the release of the Aged Care Taskforce report earlier this year, the federal government has recommended a number of changes to the cost of residential aged care, some will commence from the beginning of 2025 and the remainder expected to commence from 1 July 2025.
Over the next 40 years, the number of people over 65 is expected to at least double and the number of people over 85 expected to triple. A significant amount needs to be invested in the Aged Care sector, by both government and private sector, to be able to manage the growing numbers of older people needing care and support in their later years.
From 1 January 2025:
- Increasing the refundable accommodation deposit (RAD) maximum amount without approval from $550,000 to $750,000. This amount will be indexed annually.
From 1 July 2025:
- Introduce a RAD retention amount of 2% pa to a maximum of 10% over 5 years.
- Removing the annual fee caps and increasing the lifetime fee caps to $130,000 or 4 years, whichever occurs first.
- Introducing a means-tested hotelling supplement of $12.55 per day which is to be indexed.
- Removing the means tested fee and replacing it with a means tested non-clinical care contribution (NCCC). The daily maximum is $101.16 which is to be indexed.
From 2029/30:
- The government is looking to commence a phase out RAD altogether by 2035. A commission will be established to independently review the sector in readiness.
Grandfathering arrangements will protect anyone who enters care prior to 1 July 2025 under the “no worse off” principle to ensure they do not pay more for their care.
Comparison of current and new aged care costs
Current aged care fees
The Basic Daily fee continues to be paid by all residents without change.
The Hotelling Supplement is paid by residents as a contribution towards their living costs. It is a means tested payment calculated at 7.8% of assets greater than $238k or 50% of income over $95,400 (or a combination of both). The Hotelling Supplement is capped at $12.55 per day (indexed).
The Non-Clinical Care Contribution (NCCC) replaces the current means tested fee. The NCCC is a contribution towards the cost of non-clinical care services which will be capped at $101.16 per day (indexed). It is a means tested fee calculated at 7.8% of assets over $501,981 or 50% of income over $131,279 (or a combination of both).
The lifetime cap for the NCCC is increasing to $130,000 or 4 years, whichever occurs first, indexed twice per year. There is no longer an annual cap.
Any contributions made under the home support program prior to entering residential aged care will count towards the NCCC cap.
Who will likely pay more from 1 July 2025?
It is expected that at least 50% of people entering care will pay more for their care each year.
The below chart illustrates the expected changes for regular care costs (excluding accommodation costs and retention amounts) for individuals based on specific asset levels:
Should you enter residential aged care before 1 July 2025?
It depends. For some people, if they have an ACAT assessment and are eligible to enter residential aged care, then it would be best to seek advice from your Morgans Adviser on both the current and future cost as well as cash flow and cost funding advice.
Contact your Morgans adviser today to schedule an aged care advice appointment. Our expert team will be able to simplify the aged care system, guide you through Government subsidies, analyse payment options, create 5-year cash flow projections, and model the benefits of home concessions and future asset values for your beneficiaries.
FAQs
1. What changes to aged care costs start on 1 January 2025?
From 1 January 2025, the refundable accommodation deposit (RAD) maximum amount will increase from $550,000 to $750,000 without approval. This amount will be indexed annually.
2. What are the key aged care cost changes from 1 July 2025?
From 1 July 2025:
- A RAD retention amount of 2% per annum will apply, capped at 10% over five years.
- Annual fee caps will be removed, and lifetime fee caps will increase to $130,000 or four years, whichever occurs first.
- A means-tested hotelling supplement of $12.55 per day will be introduced.
- The means-tested fee will be replaced by the Non-Clinical Care Contribution (NCCC), capped at $101.16 per day.
3. Will aged care costs increase for most people after 1 July 2025?
Yes. It is expected that at least 50% of people entering residential aged care after 1 July 2025 will pay more for their care each year.
4. Should I enter residential aged care before 1 July 2025?
It depends on your circumstances. If you have an ACAT assessment and are eligible, it may be beneficial to seek advice from a Morgans Adviser to compare current and future costs, cash flow, and funding options.
5. What is the government’s long-term plan for RAD?
The government plans to phase out RAD starting in 2029/30, with full removal expected by 2035. A commission will be established to review the sector in preparation for this change.
