Moving into residential aged care is one of the biggest financial and emotional decisions many families will ever face. And understanding the new aged care rules from 1 November 2025 is critical for many.
For many people, one of the first questions is: “How will we pay for the room?”
The answer is no longer as straightforward as it once was.
Why Aged Care Rooms Became More Expensive
Throughout 2025, aged care room prices increased significantly, with average rises of around 12% nationally — often adding approximately $60,000 to the cost of entering care.
This increase was driven by:
- Higher accommodation approval caps
- Rising property and construction costs
- Increases in the Maximum Permissible Interest Rate (MPIR)
- New rules around Refundable Accommodation Deposits (RADs)
- Indexation of Daily Accommodation Payments (DAPs)
For families, this means entering care now requires much more careful financial planning than ever before.
Understanding RADs and DAPs
When entering residential aged care, residents are generally asked to pay for their accommodation in one of three ways:
- A lump sum called a Refundable Accommodation Deposit (RAD)
- A daily rental payment called a Daily Accommodation Payment (DAP)
- Or a combination of both
Historically, many families preferred paying a RAD if they had available assets, because the RAD was fully refundable when the resident left care or passed away.
That has now changed.
The Return of Retention Deductions
One of the biggest changes introduced from 1 November 2025 is the return of retention deductions on RADs.
Under the new rules, aged care providers can retain up to 10% of the RAD over five years.
This effectively means part of the RAD is now consumed over time rather than fully refunded.
For example:
- A RAD of $800,000 could potentially reduce by up to $80,000 over five years
- The deduction is capped at 2% per year
- This impacts both estate planning outcomes and overall affordability
This is a major shift in how families should think about accommodation payments.
The decision is no longer simply:
“Should we invest the money or pay the RAD?”
Now there is also a direct cost associated with paying the RAD itself.
DAPs Now Carry Greater Long-Term Risk
Families choosing to pay via a DAP also face new challenges.
DAPs are now indexed every six months for new residents entering care after 1 November 2025.
This creates an escalating cashflow risk over time.
While a DAP may initially appear manageable, ongoing increases can significantly affect affordability for residents who remain in care for many years.
This makes long-term cashflow modelling more important than ever.
The “DAP from RAD” Strategy Still Works — But Needs Reviewing
A commonly used strategy is to pay part of the RAD and retain some funds to gradually cover ongoing DAP costs.
This can still be effective.
However, the assumptions behind this strategy now need far more careful review due to:
- Retention deductions reducing RAD refunds
- Indexed DAP increases over time
- Changing investment return assumptions
- Different expected lengths of stay in care
There is no longer a “one size fits all” approach.
Existing Residents Are Mostly Protected
Residents who entered aged care before 1 November 2025 are generally protected under the previous rules.
This means they are usually not subject to:
- Retention deductions
- DAP indexation
However, there is an important catch.
If an existing resident later decides to move to another aged care provider, they may be required to move onto the new fee structure.
This can create unintended financial consequences for families simply trying to relocate closer to loved ones or access different care services.
A Positive Change: More Time to Decide
One welcome improvement is the removal of the old 28-day deadline for choosing between a RAD and a DAP.
Previously, families often felt pressured into making quick financial decisions during an already stressful time.
Now, residents only need to confirm their intention to pay a RAD when they are actually ready to do so.
This gives families more breathing room and allows better strategic planning.
For example:
- A resident may initially pay via a DAP
- The family home can then be prepared and sold
- Investments can be restructured carefully
- A RAD can later be paid once funds become available
Importantly, the timing now sits more firmly in the client’s control rather than the provider’s.
One Critical Issue: Do Not Delay the Means Assessment
A late legislative change introduced another practical hurdle.
Clients must now have their Means Tested Assessment (MTA) completed by Services Australia before they can pay a RAD.
This creates the risk of administrative delays causing families to pay DAPs longer than expected.
Our advice is simple:
Start the paperwork early.
Delays in lodging or processing assessments can have real financial consequences.
Final Thoughts
The aged care changes introduced from 1 November 2025 have added another layer of complexity to accommodation decisions.
Families now need to carefully balance:
- Capital availability
- Cashflow requirements
- Estate planning goals
- Investment considerations
- Timing issues
- Government assessments
- Long-term affordability
Most importantly, these decisions should not be rushed.
Good aged care advice is no longer just about understanding the rules. It is about helping families navigate one of life’s most emotional transitions with clarity, confidence, and care.
At Trusted Aged Care Services, we help families understand the financial, practical, and emotional aspects of moving into care so they can make informed decisions with confidence.
This article contains general information only and does not consider your personal circumstances. Professional advice should be obtained before acting on any information contained in this article.
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