Making the Move: Retirement Living and Financial Preparation for Aged Care

KJB Law and Phillips Wealth Partners recently hosted a seminar aimed at educating prospective residents about retirement village contracts and aged care costs.

The seminar topic was prompted by a recent ABC interview with investigative journalist Adele Ferguson, which highlighted the financial challenges many Australians face when moving into retirement villages. Ferguson’s investigation uncovered that complex contracts and exit fees leaving many residents struggling to move into aged care, often receiving far less than their initial investment upon departure.

One case involved a woman who had invested nearly $400,000 in a retirement village, only to be told she would receive just $81,000 back when transitioning to aged care, a sum insufficient to meet her needs. Ferguson’s report called for the federal government to classify retirement villages as a “financial product,” bringing them under the Australian Securities and Investments Commission (ASIC) for stricter regulation. Additionally, she advocated for the creation of an ombudsman to support elderly residents who fear retribution for raising complaints.

Retirement Village Contracts and Fees

Jo Twible, Principal of KJB Law, stressed the importance of understanding retirement village contracts before making the move. “Surprises belong in celebrations, not in legal agreements,” she said. Prospective residents should seek tailored legal and financial advice to fully understand the terms of their contracts and how they will impact their future finances. Different retirement village operators use varying financial models, each with distinct implications. For instance, a contract with a $700,000 entry cost and a 6% per year exit fee (capped at 30%) could result in a $42,000 fee after one year, and $210,000 after five years. Clear, professional advice helps clarify these fees and provides a realistic understanding of what residents can expect when they leave.

Jo emphasised the importance of clear, written advice in plain language, advising residents to share this information with family members who may be involved in future decisions. “Family members should never feel like their loved one signed something they didn’t fully understand,” she said. While retirement villages offer significant lifestyle benefits, residents must be aware of the associated costs and evaluate whether the village lifestyle aligns with their long-term financial needs, particularly if aged care is on the horizon.

Navigating Aged Care Costs

Aged care is an essential service for older Australians, but understanding the associated costs is critical to ensuring financial security in later years. With the current aged care fee structure, government subsidies, and the changes coming in 2025, it’s more important than ever for individuals and families to seek expert advice.  Craig Phillips, Snr Financial Planner and Aged Care Specialist from Phillips Wealth Partners explained that ‘by planning ahead and understanding both current and future aged care costs, people can navigate the system more effectively and ensure that their needs are met without undue financial stress and surprises’.

The upcoming changes to the Aged Care Act offer an opportunity for greater transparency and fairness, but only with thorough preparation and the right support can individuals make the most of these new provisions.

Aged Care Fees: Understanding the Current and Future Structure

Aged care costs are a significant concern for many older Australians, particularly those transitioning from retirement living to residential aged care. The fees associated with aged care can vary widely, depending on an individual’s financial situation, the type of care required, and the facility chosen. At the recent seminar, Craig Phillips, Senior Financial Planner and Aged Care Specialist at Phillips Wealth Partners, provided an in-depth look at the current and proposed aged care fee structures, helping attendees understand how these costs are calculated and what financial assistance may be available.

The Impact of the New Aged Care Act (2025)

As of 1 July 2025, the new Aged Care Act is assumed to come into effect, bringing significant changes to the structure of aged care fees. The aim of these changes is to make the system more transparent, fair, and equitable.  

These reforms could increase contributions for about half of new residents, but fully supported residents, 70% of full pensioners, and 25% of part pensioners are expected to see no increase. It’s important to remember that these proposals are not yet law and may change during the Senate review.

For those already in or soon entering aged care, these changes are essential to understand, as they impact fees, contributions, and facility options from 2025 onward.

For those with limited means, the government offers subsidies to help cover the costs of both accommodation and care. A person with low assets, such as the example in Ferguson’s report, who only receives $81,000 after exiting a retirement village, may still be eligible for significant government support when transitioning to aged care. Assuming their assets and income fall below the threshold, they could move into an aged care facility with a room advertised for $550,000 and either pay no contribution or a minimal contribution based on their financial status.

Key Aspects of the New Residential Aged Care Fees include:

• Grandfathering Provisions: Current residential care residents (as of 30 June 2025) and home care recipients or eligible individuals (as of 12 September 2024) will continue under existing rules.
• Bipartisan Support: The reforms are expected to pass but remain subject to change, with a Senate Committee review planned.

Residential Aged Care Changes (from 1 July 2025):

1. Fees and Contributions:

   • Hotelling Supplement Contribution (HSC): Residents with assessable assets over $238,000 or income over $95,400 will pay up to $11.24/day in HSC.
   • Non-Clinical Care Contribution (NCCC): Replaces the Means-Tested Care Fee, with liability beginning once assets exceed $502,981 or income exceeds $131,279, capped at $101.16/day and $130,000 lifetime, ending after four years or reaching the lifetime limit.

2. Fee Revisions:

   • Higher Everyday Living Fee (HELF): Replaces Additional Services and Extra Services Fees, with reviews and a cooling-off period.
   • Room Price Increase: Facilities can charge up to $750,000 (indexed) without approval starting 1 January 2025.
   • Retention from Refundable Deposits: 2% p.a. will be retained from RADs, up to five years.
   • Phasing Out RADs: Proposed phase-out by 2035, pending a 2029-30 readiness review.
   • Indexation of Daily Accommodation Payments: Facilities can adjust DAPs with CPI twice annually.

3. Further Reviews:

   • An accommodation supplement review will assess rates and encourage quality accommodation and acceptance of low-means residents.
   • No changes are proposed for assessing the family home in social security and aged care calculations.

Key Aspects of the New 'Support at Home' Program

Funding Categories and Coverage: Support at Home will provide funding for three primary categories:

1. Clinical Care: Covers medical support, such as nursing and occupational therapy. The government will fully fund these services.
2. Independence: Includes assistance with daily living tasks like dressing and medication management.
3. Everyday Living: Helps with household tasks like cleaning, gardening, shopping, and meal prep.

The new program introduces contributions based on the Age Pension income and assets test, a shift from the current income-only test. This means individuals will contribute toward independence and everyday living costs based on their financial means.

New Classification System: A significant change is the introduction of 10 funding classifications, expanding from the current four HCP levels. These classifications are designed to tailor funding more precisely to each individual’s needs. The system includes:

• Eight ongoing classifications
• Two short-term classifications: a restorative care pathway and an end-of-life care pathway.

The highest funding classification provides up to $78,000 annually, surpassing the current Level 4 HCP by nearly $17,000 per year.

Income- and Asset-Based Contributions: Contributions will be based on a percentage of service costs and determined by the Age Pension means test. Government subsidies will cover the remaining costs, ensuring recipients only pay according to their financial capacity.

Quarterly Budgets for Flexibility: Recipients will receive a quarterly budget based on their classification. Working with providers, they can allocate this budget across services, with an option to save up to $1,000 or 10% of the quarterly amount for future quarters.

Price Caps on Services: To prevent excessive charges, the government will set price caps for services, informed by the Independent Health and Aged Care Pricing Authority. Providers will only bill recipients’ budgets after services are delivered.

End-of-Life Care at Home: For older Australians in the final months of life who wish to remain at home, the program offers high-level funding of up to $25,000 over 12 weeks. This pathway works alongside existing palliative care services.

Continuity for Current Home Care Package Recipients

Funding Equivalence and Grandfathering Provisions: Those receiving Home Care Packages as of 30 June 2025 will see no reduction in their support, with access to equivalent funding and retained unspent funds under the Support at Home program. Individuals on the waiting list for an HCP by this date will receive a budget equivalent to their package level once allocated.

'No Worse Off' Principle for Contributions: For current Home Care recipients or those on the waiting list as of 12 September 2024, a “no worse off” policy will apply, ensuring their contributions will be the same or lower under the new program. If these individuals later transition to residential care, they will retain the existing contribution arrangements unless they choose to switch to the new system.

Changes to Residential Care Payments

Though Support at Home focuses on home-based care, changes to residential care accommodation payments will still apply to individuals moving from the Home Care system, as these are negotiated directly with providers.

The Support at Home program promises to be a more flexible, needs-based approach to aged care. While these reforms are anticipated to proceed, they remain subject to parliamentary approval and further review.

This comprehensive overhaul, if enacted, will reshape aged care fee structures and support systems, with many new fees for higher-asset clients and protection for low-income residents.

However, the complexity of aged care fees can be overwhelming for many people, which is why it’s crucial to seek professional advice. By working with a financial planner and aged care specialist, individuals can better understand the full cost of aged care and how it fits into their broader financial plan. This proactive approach helps families make informed decisions and avoid financial surprises in the future.

 

KJB Law and Phillips Wealth Partners will be collaborating to host further educational events in 2025 going into detail about the new Aged Care Act, and the impact on the home care fees and permanent residential aged care.