At Paris Financial Private Wealth, we’re committed to helping you navigate complex financial landscapes, including those that impact aged care. If you’re planning for yourself or assisting a loved one with aged care arrangements, significant cost changes came into effect on 1 January 2025 which may influence your decisions. Understanding these changes is crucial to ensure financial peace of mind and optimal planning.
In this guide, we’ll explain what these changes mean, how they might impact you, and steps you can take to prepare.
What Are the Aged Care Cost Changes in 2025?
The Australian government has announced updates to aged care costs, including adjustments to the Maximum Permissible Interest Rate (MPIR) and changes to how aged care fees are structured. These updates aim to simplify and improve transparency in aged care funding while ensuring providers have adequate resources.
Key Updates:
- Maximum Permissible Interest Rate (MPIR): The MPIR will change, directly impacting how lump-sum Refundable Accommodation Deposits (RADs) convert into Daily Accommodation Payments (DAPs).
- Fee Structure Adjustments: The current means-tested care fee (MTCF) is abolished with a new means-tested fee referred to as the Non-Clinical Care Contribution (NCCC). Furthermore, in addition to the Basic Daily Care fee, residents who have more than $238,000 in assessable assets or $95,400 in income will be required to pay a Hotelling Supplement Contribution (which the government use to pay for).
- Inflation-Linked Adjustments: Aged care fees will now be reviewed more frequently to align with inflation rates. This is most significant for residents who elect to pay for the DAP as payments will be indexed twice a year in line with inflation.
These changes could significantly affect the affordability of aged care, especially for those relying on a mix of upfront payments and ongoing fees.
Understanding the MPIR and Its Impact
The Maximum Permissible Interest Rate (MPIR) plays a crucial role in aged care payments. It’s the rate used to convert RADs (lump-sum payments) into DAPs (ongoing daily fees). A higher MPIR means higher daily payments if you opt for a partial or full DAP arrangement instead of paying the RAD upfront.
What Does This Mean for You?
- Higher Daily Costs: If you choose to pay for aged care through daily payments rather than a lump sum, your costs could increase.
- Decision Complexity: Families may face more difficult decisions about whether to pay upfront, use a mix of both RADs and DAPs, or finance payments another way.
Tip: Working with a financial advisor can help you assess which option aligns best with your financial goals and cash flow needs.
What Happens If You Rely on RADs?
Many individuals may prefer to pay a Refundable Accommodation Deposit (RAD) upfront to reduce ongoing daily fees or provide some social security benefits. However, facilities will now be permitted to retain 2 % of the RAD balance for 5 years.
How This Affects Planning:
- Reduced Negotiation Power: Providers may request further financial evidence that you can support ongoing care cost.
- Increased Importance of Budgeting: Families will need to carefully plan for higher ongoing expenses.
- Change of rooms: Changing rooms or facilities will trigger a change in assessment and a new interest rate could be applicable.
Example:
If the MPIR increases from 7% to 8%, the daily payment for a $500,000 RAD equivalent would rise from $96 to $110 per day. This extra cost adds up quickly, making strategic planning essential.
How Inflation Ties Into the Changes
Aged care fees will now be reviewed more frequently to keep pace with inflation. While this change ensures providers can maintain high-quality care, it also means families need to prepare for more regular cost increases.
Financial Planning Considerations:
- Expect Gradual Increases: Your aged care budget should account for periodic fee adjustments.
- Review Regularly: Regularly reassessing your financial situation will help you stay ahead of these changes.
Steps to Prepare for Aged Care Cost Changes
Planning ahead can make all the difference in navigating these updates. Here are some steps to take:
- Work with a Financial Advisor
A financial advisor specialising in aged care can help you evaluate your options and determine the best strategy for your situation.
- Review Your Budget
Ensure your financial plan accounts for both upfront and ongoing costs. Consider how changes to the MPIR or fee structures could affect your cash flow.
- Consider Financing Options
If paying a lump sum isn’t feasible, explore alternative financing options to manage daily payments without straining your budget.
- Stay Informed
Keep up to date with changes in aged care regulations to avoid surprises and take advantage of any new opportunities for financial optimisation.
Why Paris Financial Private Wealth?
At Paris Financial Private Wealth, we’re dedicated to helping you navigate financial complexities with confidence. Aged care planning is one of our specialties, and we’re here to provide the guidance you need to make informed decisions.
Our Services Include:
- Tailored Financial Strategies: We customise solutions to suit your unique needs and goals.
- Ongoing Support: From initial consultations to regular reviews, we’re with you every step of the way.
- Expertise in Aged Care: Our team stays updated on the latest industry changes to provide you with the most accurate advice.
Final Thoughts: Prepare for Aged Care Cost Changes
With the upcoming changes to aged care costs, proactive planning is more important than ever. By understanding how updates to the MPIR and fee structures impact you, you can make informed choices that ensure financial security.
Ready to Take the Next Step?
Contact the Paris Financial Private Wealth team today to discuss your aged care planning needs. Together, we’ll create a strategy that helps you navigate these changes with ease and confidence.
Source: Australian Government | Department of Health and Aged Care
