How you could save $200,000 on aged care this year

If you are currently considering moving to an aged care home for yourself or a loved one, moving sooner rather than later could save you $200,000.

As part of the 2025 aged care reforms the government has announced that the market price cap on aged care beds will increase from $550,000 to $750,000 from 1 January. The market price cap is the threshold beyond which an aged care home needs to get approval from the government for their Refundable Accommodation Deposit (RAD) price.

Incoming changes to the aged care system could see prices significantly increase.Credit: Ron Homer

While there are RADs priced below and above the threshold, the effect of the cap is that many beds are priced at, or just below, the threshold.

This change is likely to catch many people by surprise as the bulk of the aged care reforms don’t take effect until 1 July next year. The change is likely to see aged care beds that are currently priced at the $550,000 jump up to $750,000 with beds priced between $550,000 and $750,000 increasing too.

While it is up to you whether you pay for your aged care accommodation by lump sum (RAD) or daily payment (DAP) the increase in the RAD price will impact residents who pay by daily payment. That’s because the daily accommodation payment is simply interest on any unpaid RAD, currently the rate is 8.38 per cent, per annum.

Let’s look at an example. If the RAD price today is $550,000 and on 1 January it increases to $750,000 then if you pay by RAD moving into the aged care home today rather than in the new year will save you $200,000.

If you are going to pay by daily payment, the daily payment today would be $126/day if the rate stays the same then in the new year it would be $172/day. So, moving into the aged care home this year could save you around $16,500 per year in daily accommodation payment.

Of course, cheaper doesn’t always equate to more affordable. Using investments to pay a RAD can achieve the equivalent of a 7.8 per cent, per year return through the increase in your pension, in addition, you can pay less in aged care fees.

You see, while the RAD is included in the aged care means test, it is exempt from pension assessment. Let’s say you are a couple with $1.2 million of investments and one person moves into aged care.

Paying a RAD of $550,000 would see your pension increase by $41,626 per year, paying a RAD of $750,000 would increase the pension by a further $14,820 per year. The increase in price on 1 January won’t necessarily come with a higher standard of accommodation so opting for the $750,000 room now could actually see you get more bang for your buck.

If you are thinking about moving to an aged care home it is definitely worth doing your research and crunching the numbers.

Don’t forget too that many aged care homes have a waiting list so you may need to wait for a room to become available. Seeking advice about your options and the best way to pay for your care before you move is a good idea.

Rachel Lane is the author of the bestselling book Aged Care. Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker. The new edition of Downsizing Made Simple is now available online.

• 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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