Aged care accommodation deposits

As people live longer, more will end up in aged care. The number of people in permanent aged care in Australia is expected to triple in the next 35 years, from 225,000 today to 700,000 in 2050.

Aged care is labour intensive, and land and buildings are expensive to buy and maintain. The owners of such facilities expect to make a return on their investment. From a client’s point of view, typical fees include accommodation deposits and charges, daily fees, extra services fees and means-tested fees.

Accommodation deposits (known as Refundable Accommodation Deposits, or RADs) can be as high as $2 million to secure a bed in an aged care facility.

In many cases, these RADs are negotiable and at times can be as much as halved. Willingness to negotiate on RADs depends very much on the demand for beds – and the supply of beds – in a particular aged care facility.

Many aged care facilities prefer the RAD to be paid as a lump sum upfront. However, it is possible to choose to make interest payments only, or pay with a combination of lump sum and interest payments. 

In a government-accredited aged care facility, the accommodation deposit is fully government guaranteed.

Before July 2014, the accommodation bond repaid to the family would be reduced by retention amounts deducted by the aged care facility.

Since July 2014, any lump sum paid as a RAD is now generally repaid in full at the end of the care period.

The RAD is an excluded asset for social security purposes. Therefore, in some cases, where existing cash is used to pay for a RAD, it can result in a new or increased Age Pension entitlement. 

More often, a family home is sold to fund the RAD. In this case, the proceeds from its sale are counted as an asset. As a result, the cash remaining after paying the RAD can often result in an Age Pension being reduced or lost entirely.

Are you considering moving a loved one into an aged care facility? Do you understand what is involved? Do you find the aged care system easy to understand or do you find it confusing? 

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Written by Ben

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