Aged Care Rules You Need to Know

Making the decision to move a loved one into aged care is one of the most emotionally challenging experiences a family can face. It’s a time filled with worry, uncertainty, and difficult conversations. Layered on top of this emotional stress is a financial system so complex it can feel like a maze with no map.

Just when you thought it couldn't get more confusing, significant changes to Australia's aged care system have just been implemented. For many standard or wealthy residents, these new rules mean aged care is about to become a lot more expensive and even harder to navigate. The financial ground has shifted, and what you thought you knew may no longer apply.

This article cuts through the noise. We’re going to reveal the five most surprising and financially impactful changes that every Australian family needs to understand. These are the truths that can make a profound difference to your financial security and peace of mind during a critical time.

1. The 'Middle' Is Now the Toughest Place to Be

It sounds counter-intuitive, but under the new rules, individuals with a moderate level of assets are in the most difficult financial position. Specifically, those with total assets between $200,000 and $500,000 are likely to "do things pretty tough."

The reason for this squeeze is that their assets are often insufficient to cover the large, lump-sum entry fees, known as a Refundable Accommodation Deposit (RAD). These deposits have risen sharply, with the average now sitting between $500,000 and $600,000. Critically, these deposits can exceed $1 million in major metropolitan areas, putting them far out of reach for this middle group. Because they can't pay the full RAD upfront, these residents are forced to pay a high interest rate on the unpaid portion. To make the threat real, consider this: if a facility asks for a $500,000 RAD and a family can only pay $300,000, the $200,000 shortfall will incur interest charges of over $13,000 per year at the current rate of 6.71%. This rapidly erodes cash reserves and pension income, creating significant financial pressure from day one.

As aged care specialist Ashley Rowan explains:

I've been saying that for my clients for the past 15 years—if you've got between, let's say, $200,000 and $500,000 worth of assets total, you're going to do things pretty tough.

2. Your 'Refundable' Deposit Isn't Fully Refundable Anymore

In a significant policy shift, the government has reintroduced a rule called "retention," which has not been in place since 2014. This change fundamentally alters the nature of the large Refundable Accommodation Deposit (RAD) paid upon entry. Under this rule, aged care facilities can now legally keep a portion of the lump-sum deposit you pay. The facility can retain 2% of the deposit amount each year, for a maximum of five years.

To put this into perspective, if a resident pays a $500,000 RAD, the aged care facility will keep $10,000 per year. Over five years, this amounts to a total of $50,000 that will be permanently retained by the facility. Only the remaining $450,000 will be returned to the resident or their estate.

What makes this rule particularly impactful is that while families must plan for a long stay, the average tenure in residential aged care is statistically only two and a half years. This means facilities will often be retaining these funds over a much shorter period of care, making it a highly effective revenue generator for them and a guaranteed cost for the family, regardless of the actual length of stay.

3. A Barrage of New Fees and a 60% Higher Lifetime Cost

The recent changes introduce a barrage of new and increased costs that families must budget for. There are three distinct increases to be aware of.

First, a brand new fee called the "hoteling contribution" has been introduced. This is an additional means-tested fee charged on top of the basic daily care fee. It can cost up to $22 per day, which adds up to approximately $8,000 per year in extra expenses for those affected.

Second, the lifetime cap for means-tested care fees has seen a massive increase of roughly 60%, jumping from approximately $84,000 to about $135,000. However, there is a crucial detail here: this fee can only be charged for a maximum of four years. After that period, the fee stops, even if the lifetime cap has not been reached, providing a small but important planning certainty.

Third, a subtle but important change has been made to the interest charged on unpaid accommodation costs (the 6.71% rate). Previously, this rate was locked in on the resident's date of entry. Moving forward, this interest rate will be indexed, meaning it is no longer fixed and will likely get more expensive over time.

4. There's a Surprising Centrelink 'Hack' for Couples

Amid the rising costs, there is a silver lining for couples where one partner needs to move into residential aged care while the other remains at home. A specific Centrelink rule can provide a significant and immediate financial uplift.

When this situation occurs, Centrelink will assess the couple as being "separated due to illness." While they are still a couple in every other respect, this classification changes how their pension is calculated.

Financially, this means both individuals are moved from the couple's rate of pension to the higher single rate of pension. The numbers are significant: the maximum combined pension for a couple is about $23,000 each per year. In contrast, the maximum single rate of pension is about $30,000 each. This simple reclassification can provide an immediate boost in government support, helping to manage the new costs of care.

5. Why Gifting Your Assets Away is a Devastating Financial Trap

A common pre-planning idea families consider is giving away assets—often to children—to appear as a "low means" individual and qualify for full government support. The goal is to avoid paying the large accommodation deposit by falling below the asset thresholds.

However, this strategy is extremely risky and rarely advisable. The need for aged care often arises unexpectedly from a sudden health event like a fall or a sharp decline in health. This frequently happens well within the 5-year "deprivation period" that Centrelink examines when assessing assets.

The danger is acute: if care is needed within those five years, the gifted money is gone and cannot be used to pay for accommodation. Centrelink will still assess the gifted amount as if the person still owns it, but the family no longer has access to the funds. This can put the family in a financial crisis, unable to pay for the necessary care at the most vulnerable time.

As one financial adviser with extensive experience in the field states:

I've been giving this sort of advice for 15 years, and I've never been able to recommend that strategy to a single individual.

Navigating the New Reality

The new aged care rules undoubtedly make the system more expensive for many Australians. However, it's crucial to remember that significant government support still exists. The true annual cost to provide residential care is estimated to be around $180,000 per person, and even with these changes, the government continues to cover the majority of that cost.

What has changed is the financial landscape and the calculations families must make. With higher fees, non-refundable deposits, and fewer certainties, forward planning is no longer a luxury—it's a necessity. The aged care landscape has fundamentally changed. The most important question now is not if you should plan, but how soon you can start the conversation with your family.

Sean Sullivan is an Authorised Representative of Vivid Financial Planning Pty Ltd, and holds an Australian Financial Services License #478937.

The information on this Website is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate for your needs and, where appropriate, seek professional advice from a financial adviser.