Aged Care Funding: Subsidies, Fees, and Your Pension

Navigating aged care funding in Australia can feel overwhelming, especially when you're trying to understand how it impacts your Age Pension. Whether you're considering residential aged care, home care, or other support services, knowing the ins and outs of subsidies, fees, and pension implications is crucial for making informed decisions. In this blog post, we break down the key components of aged care funding and how they interact with your pension, helping you plan for a secure and comfortable future.

Understanding Aged Care Funding in Australia

Aged care services in Australia are heavily subsidised by the government, but there are still costs you may need to cover. These services fall into two main categories: home care (support to live independently at home) and residential aged care (living in a care facility). The funding model combines government subsidies with personal contributions, which depend on your financial situation, including your Age Pension.

Key Components of Aged Care Funding

1. Government Subsidies: The Australian government provides significant funding to approved aged care providers to reduce costs for individuals. Subsidies vary based on the level of care required and the type of service.

2. Personal Contributions: These are fees you pay, such as basic daily fees, means-tested care fees, and accommodation payments, depending on your income and assets.

3. Centrelink Assessments: Your Age Pension and aged care fees are influenced by Centrelink’s income and assets tests, which determine your eligibility for subsidies and the amount you’ll contribute.

Let’s dive deeper into how these elements work and what they mean for your pension.

How Aged Care Affects Your Age Pension

The Age Pension is a critical income source for many Australian retirees, and entering aged care can impact how much you receive. Centrelink assesses your income and assets to determine your pension eligibility and the fees you’ll pay for aged care. Here’s how it works:

1. Income and Assets Tests

Centrelink applies both an income test and an assets test to calculate your Age Pension and aged care contributions. The test that results in the lower pension amount is used.

• Income Test: Income from sources like investments, superannuation, or part-time work is assessed. If you move into residential aged care, your home may be exempt from the assets test (under certain conditions), but rental income from it could count as income.

• Assets Test: Assets like savings, shares, and property (if not exempt) are evaluated. For home care, your home is typically not counted as an asset. In residential care, it may be exempt for up to two years or if a partner or dependent continues to live there.

2. Impact on Pension Payments

Entering aged care doesn’t automatically stop your Age Pension, but your payment may be adjusted based on the tests above. For example:

• If you pay higher accommodation costs in residential care, your assets may decrease, potentially increasing your pension.

• If you receive income from other sources (e.g., superannuation), your pension may be reduced.

It’s essential to report any changes in your circumstances to Centrelink to ensure accurate pension calculations.

Aged Care Fees and Subsidies

When accessing aged care, you’ll encounter several types of fees. The good news is that government subsidies significantly reduce these costs for most people. Here’s a breakdown of common fees and how subsidies apply:

1. Home Care Fees

Home care packages help you stay independent at home by providing services like personal care, nursing, or domestic assistance. There are four levels of home care packages, with subsidies increasing based on care needs.

• Basic Daily Fee: A standard fee (e.g., around $11-$12 per day in 2025) that everyone pays, capped at a percentage of the Age Pension.

• Income-Tested Care Fee: If your income exceeds a certain threshold, you may pay an additional fee, up to a yearly cap (e.g., around $6,000-$12,000 depending on your package level).

• Subsidies: The government covers the majority of costs, with subsidies ranging from $10,000 to $60,000 annually, depending on the package level.

2. Residential Aged Care Fees

Residential aged care involves moving into a facility, and costs can be higher due to accommodation and care needs.

• Basic Daily Fee: Covers living expenses like meals and laundry, set at 85% of the single Age Pension (e.g., around $60 per day in 2025).

• Means-Tested Care Fee: Based on your income and assets, this fee has annual and lifetime caps (e.g., $33,000 annually and $80,000 lifetime in 2025).

• Accommodation Payments: You may pay a Refundable Accommodation Deposit (RAD) (e.g., $300,000-$800,000) or a Daily Accommodation Payment (DAP), or a combination. Low-income earners may qualify for government-funded accommodation.

• Subsidies: The government subsidises care costs, and those with low means may have accommodation costs fully or partially covered.

3. Additional Services Fees

Some facilities offer extra services (e.g., premium rooms or activities) for an additional cost, which aren’t subsidised and don’t affect your pension directly.

Strategies to Manage Costs and Protect Your Pension

To make aged care affordable while maximising your Age Pension, consider these tips:

1. Understand Your Financial Position: Use Centrelink’s online calculators or consult a financial adviser to estimate your fees and pension changes.

2. Explore Payment Options: In residential care, decide whether a RAD, DAP, or combination suits your finances. Paying a RAD may reduce your assets, potentially increasing your pension.

3. Leverage Exemptions: If your partner or dependent lives in your home, it may be exempt from the assets test, preserving your pension.

4. Review Income Streams: Adjust superannuation withdrawals or investments to minimise income counted in the means test.

5. Seek Professional Advice: A financial planner or aged care specialist can help tailor a plan to balance costs and pension benefits.

Common Questions About Aged Care and Pensions

• Will I lose my Age Pension if I enter aged care? No, but your pension may be adjusted based on income and assets tests.

• Can I keep my home? Yes, and it may be exempt from the assets test in certain cases, like if a partner lives there.

• How do I apply for subsidies? Contact My Aged Care (1800 200 422) to arrange an assessment, then work with Centrelink for financial evaluations.

Conclusion

Aged care funding in Australia is a complex but manageable system, with government subsidies playing a significant role in reducing costs. By understanding how fees, subsidies, and Centrelink assessments interact with your Age Pension, you can make informed choices that suit your financial situation. Whether you’re planning for home care or residential aged care, early preparation and professional advice can help you secure the support you need without compromising your retirement income.

For more information, visit My Aged Care or contact Centrelink to discuss your circumstances. Stay informed, plan ahead, and make the most of the support available to you.

Disclaimer: Financial information in this post is general in nature. Always consult with a financial adviser or Centrelink for advice tailored to your situation.