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Cracking the Code: What Self-Funded Retirees Need to Know About Aged Care Fee Changes in 2025

A major shift is coming to Australia’s aged care system, with the introduction of a new Aged Care Act set to take effect from July 1, 2025. This will mark the third major rewrite of aged care legislation since 1997, following significant reforms in 2014. The new law is designed to refocus aged care on the individual, rather than simply regulating how service providers receive government subsidies. However, these changes will have important financial implications—especially for self-funded retirees and high-net-worth individuals.

At the Cracking the Code: Mastering Aged Care Fees for Self-Funded Retirees workshop, Louise Biti, Director of Aged Care Steps, broke down the changes and their impact. Here’s what you need to know.

What’s Changing?

• Means Testing Adjustments – The way assets and income are assessed for aged care costs is changing. Self-funded retirees and high-net-worth individuals may see higher fees under the new system.
• Retention Fees on Lump Sum Payments (RADs) – From July 1, 2025, aged care providers will be able to deduct up to 2% annually for five years from lump sum refundable accommodation deposits (RADs). This means families may lose up to 10% of the initial deposit over time.
• Indexation of Daily Fees (DAPs) – For those choosing to pay a daily accommodation payment (DAP) instead of a lump sum, fees will now be indexed every six months, increasing costs over time.
• Mandatory Means Testing for Basic Daily Fees – Currently, the government subsidizes part of the basic daily fee. Under the new rules, those with assets above $206,000 will need to contribute more.
• Removal of Annual Cap on Means-Tested Fees – The government will remove the $34,000 annual cap on means-tested care fees, meaning higher-income individuals could pay more over time.
• New Approach to Home Care Packages – The current four-tier home care system will expand to eight levels, with stricter rules on what services can be claimed. Additionally, self-funded retirees will pay a higher share of costs, while government support will focus more on pensioners.

What This Means for Self-Funded Retirees
For those considering aged care in the near future, the decision on when to move in could be crucial. Under the new system, aged care fees will generally be higher for wealthier individuals, making careful planning essential.

Key Considerations

• Should You Move Before July 1, 2025?
  • If you enter an aged care facility before July 1, you will be grandfathered under the current rules and avoid the 2% annual retention fee on RADs.
  • However, if you wait until after July 1, the new retention fee and indexed DAPs will apply, increasing long-term costs.
• Lump Sum (RAD) vs. Daily Payment (DAP)
  • Paying a RAD lump sum before July 1 avoids new fees and ensures full refundability.
  • Post-July, DAPs will be indexed, meaning ongoing costs will rise over time.
  • Families should assess investment opportunities vs. guaranteed returns—as RADs may still be more cost-effective in the long run.
• Should You Disclose Assets to Centrelink?
  • Under the current rules, self-funded retirees with more than $3.3 million in assets (singles) or $6.8 million (couples) gain no financial benefit from disclosure.
  • Under the new rules, non-disclosure results in a higher flat-rate means-tested fee of up to $41,500 annually. The threshold for disclosure benefits will be $850,000 (singles) and $2.1 million (couples).
• Home Care vs. Residential Aged Care
  • Most Australians prefer to stay at home for as long as possible.
  • The new “Support at Home” program (replacing home care packages) introduces higher co-payments for self-funded retirees, while pensioners will receive more subsidies.
  • Aged care advisors will play a crucial role in helping families navigate service providers and plan cash flow.

How to Prepare for the Changes

• Review Your Financial Strategy – Speak to your financial adviser about structuring assets efficiently to minimize means-tested fees.
• Assess Your Aged Care Timeline – If aged care is imminent, consider moving before July 1, 2025 to take advantage of the current rules.
• Prepare for Increased Costs – Be ready for higher accommodation fees and daily living costs, particularly if opting for residential care post-July 2025.
• Consider Home Care Options – With government focus shifting towards keeping people at home longer, now is the time to explore home care strategies and funding.
• Engage Legal and Estate Planning Experts – The interaction between trusts, self-managed super funds (SMSFs), and aged care rules requires careful planning to avoid unintended financial consequences.

Final Thoughts

Aged care planning is no longer just a concern for the elderly—it’s a key financial planning issue that should be addressed early. The new Aged Care Act of 2025 introduces complex rule changes that could result in higher fees for self-funded retirees, making it crucial to have a proactive strategy.

As Louise Biti noted, “If you’re advising high-net-worth clients, aged care should be on your radar. Being prepared means avoiding crisis decision-making and ensuring clients receive the best possible care without unnecessary financial burden.”
For tailored financial advice on how these changes impact your situation, reach out to us.

Posted in Articles at 24 March 25