What you need to know about the exit-fee sting coming to aged care

From July 1, aged care homes will start charging an exit fee – up to 10 per cent over five years – making them look a little more like retirement villages. But while both can provide you with accommodation and care, that’s where the similarities often end.

Legally and financially, they’re different – and understanding those differences can help you make the right decision.

One of the most significant differences between villages and aged care is the level of care.Credit: Getty

Retirement villages are governed by state-based legislation. The majority of contracts are either leasehold or licence agreements, often registered on the property title.

Your home in the village might be an apartment, villa or duplex with one, two or three bedrooms, one or two bathrooms, living and dining areas, a kitchen and a laundry.

What you pay and your contract determines whether Centrelink sees you as a home owner, and whether you’re eligible for Commonwealth Rent Assistance.

Most people pay more than $252,000, and are considered home owners, with the value of their home exempt and unable to qualify for rent assistance. If your home is $252,000 or less, then the opposite is true, and you may qualify for up $212 per fortnight of rent assistance.

It’s easy to confuse retirement villages and aged care homes – they’re both about housing and support, after all.

The other costs of living in the village are the ongoing fee, which covers the cost of maintaining and running the village, and normally an exit fee, which will often be a percentage of your purchase price or selling price – and could also include things such as capital gain or loss, renovation costs, and marketing or selling fees.

Your contract will also outline how and when you’ll get your money back, and whether there’s a guaranteed buyback if your home doesn’t sell within a set time.

In an aged care home, you are likely to have a single room with an ensuite – although some people share. There are larger options (called “suites”) that may have a separate lounge area, kitchenette, and even a balcony or courtyard.

You can pay for your accommodation as a lump sum (a Refundable Accommodation Deposit or RAD), a daily payment (DAP), or a mix of both. If you choose the DAP, it’s calculated on the unpaid RAD at a government-set interest rate – currently 8.17 per cent per annum. The RAD is government-guaranteed and is generally refunded within 14 days of moving out, or after probate if you pass away.

One of the most significant differences between villages and aged care is the level of care. In a village, care usually comes via a home care package and possibly private carers. The cost of your home care package is income-tested, with a maximum contribution of $13,724 per year.

But care isn’t one-size-fits-all; each village has different arrangements. Ask the right questions – who responds to the emergency button? When are carers available? What happens when your care needs increase – can you stay, or will you be asked to leave?

In aged care homes, care is available 24/7. Everyone pays the basic daily fee of $23,294 per year and beyond that, you can pay a means-tested care fee of up to $34,311 per year. There’s a lifetime cap on means-tested fees across both home and residential care of $82,347.

It’s easy to confuse retirement villages and aged care homes – they’re both about housing and support, after all. But in almost every other way – from the legal framework to how you pay and the kind of care you receive – they’re different.

Knowing how they compare can help you work out which one suits you best.

Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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