Aged Care Reform: What the New Rules Mean for Planning

Australia’s aged care system is entering a new era, with the Aged Care Act 2024 introducing the most significant changes to the system in decades. The new framework came into effect on 1 November 2025 and reshapes both how aged care is delivered and how it is funded.

Importantly, the reforms include a “no worse off” principle, meaning individuals already receiving aged care services prior to the changes can remain on their existing arrangements if they are financially more beneficial.
Assessment: the starting point
Before accessing either in-home care or residential aged care, individuals must undergo an aged care assessment. This assessment determines both eligibility for government-supported services and the level of care required.
Stronger support for staying at home longer
A central objective of the reforms is to help older Australians remain at home for longer. The new Support at Home program provides funding across eight levels of care depending on individual needs.
Services are grouped into three categories:
Clinical care services
• Services such as nursing care, physiotherapy and occupational therapy
• Fully funded by the government with no contribution required
Independence services
• Support with personal activities such as showering, dressing and medication assistance
• Moderate contributions may apply depending on income and assets
Everyday living services
• Cleaning, gardening, meal preparation and shopping assistance
• Generally attract the highest contribution rates
An independent assessor determines the level of funding an individual receives. Contributions for independence and everyday living services vary depending on whether someone is a full Age Pensioner, part pensioner or self-funded retiree, with Services Australia assessing income and assets.
Funding is allocated via a quarterly budget, with up to $1,000 of unspent funds able to be carried forward to the next quarter.

Approved providers deliver the services individuals choose within their allocated budget.

Residential aged care costs
When care needs increase beyond what can be supported at home, residential aged care may become necessary. Costs generally fall into three categories:
• accommodation costs
• daily living costs
• means-tested care contributions
Accommodation costs
Accommodation can be paid through:
• Refundable Accommodation Deposit (RAD) – lump sum payment
• Daily Accommodation Payment (DAP) – interest-style payment
• Combination of both
Previously, the RAD was fully refundable. Under the new rules, providers can retain 2% of the RAD each year for up to five years, meaning a maximum retention of 10%.
For example, a $500,000 RAD would result in $10,000 retained each year, up to $50,000 over five years. There is also an opportunity cost as the capital tied up in the RAD cannot be invested.
If accommodation is paid via a DAP, the cost is calculated using the Maximum Permissible Interest Rate (MPIR), currently around 7.65%. On a $500,000 accommodation price, this equates to approximately $38,250 per year. While this option retains access to capital, the investment return on those funds would need to exceed the DAP cost to be financially beneficial, which introduces some investment risk.
Given individual circumstances, careful planning is important to determine which option is most appropriate.
Basic daily care fee
All residents pay the Basic Daily Care Fee, regardless of financial position, and this has not changed under the new system.
• Equal to 85% of the single Age Pension rate
• Covers everyday living costs such as meals, cleaning and laundry
• Currently $65.55 per day, or around $23,925 per year
New means-tested care contributions
The reforms replaced the previous Means Tested Care Fee with two new contributions based on income and assets.
Hotelling Contribution
• Extra contribution toward everyday living services
• Up to $22.15 per day (around $8,085 per year)
Non-Clinical Care Contribution
• Covers personal care such as mobility and daily assistance
• Up to $105.30 per day (around $38,435 per year)
When both of the above contributions reach their maximum levels, the combined cost can be approximately $46,520 per year.
The Non-Clinical Care Contribution is subject to a lifetime cap of around $135,318.69 (indexed), meaning it stops once the cap is reached or after four years of payments. Contributions made under the Support at Home program also count toward this cap, which may reduce costs if an individual later enters residential aged care.
The importance of financial advice
Aged care costs are becoming more complex, making careful financial planning increasingly important. At Hewison Private Wealth, we help clients build well diversified portfolios focused on sustainable cashflow, supporting retirement income while also preparing for future aged care costs.

Navigating aged care decisions can be complex, particularly when balancing accommodation choices, cashflow and long-term investment planning. If you would like guidance on preparing for future aged care costs, we invite you to speak with a Hewison Wealth Adviser: Start the Conversation