Major Overhaul of RAD Payments in Aged Care: What You Need to Know from 1 November 2025

Australia's aged care sector is undergoing transformative reforms aimed at enhancing fairness, sustainability, and quality of care. Central to these changes is the modification of the Refundable Accommodation Deposit (RAD) structure, a pivotal component of residential aged care funding.

From 1 November 2025, new regulations will redefine how RADs are managed, impacting both residents and providers.

Understanding The RAD

The RAD is a lump-sum payment made by residents entering aged care facilities, serving as a contribution towards their accommodation costs. Traditionally, this amount has been fully refundable upon the resident's departure or passing, ensuring financial security for families.

Key Changes Effective 1 November 2025

1.Introduction of RAD Retention

• Retention Rate: Aged care providers will be permitted to retain 2% per annum of the RAD balance.
• Duration: This retention applies for a maximum of five years, totalling up to 10% of the initial RAD.
• Calculation: The retention amount will be calculated daily and deducted monthly from the RAD balance.

Example: For a RAD of $500,000, a provider could retain up to $50,000 over five years.

2. Impact on Residents

• Financial Planning: Residents and their families must account for the non-refundable portion when planning finances.
• Means Testing: The retained amount may influence means-tested care fees, as the RAD is considered an asset in assessments.

3. Provider Implications

• Revenue Stream: The retention provides a new revenue  source for providers, potentially aiding in facility improvements and service enhancements.
• Transparency Requirements: Providers must  clearly disclose retention policies in accommodation agreements, ensuring  residents are fully informed.

Rationale Behind the Reform

The government's decision to allow RAD retention stems from recommendations by the Aged Care Taskforce, aiming to:

• Enhance Sustainability: Provide providers with additional funds to maintain and improve facilities.
• Align with Other Sectors: Bring aged care practices in line with retirement village models, where retention is common.
• Encourage Investment: Make the sector more attractive for investment by ensuring stable revenue streams.

Considerations for Prospective Residents

• Entry Date Matter : The retention policy applies only to residents entering care from 1 November 2025 onwards.
• Contractual Clarity : It's crucial to thoroughly review accommodation agreements and understand the financial implications.
• Seek Advice: Consulting with financial advisors can help navigate the complexities introduced by these changes.

Conclusion

The introduction of RAD retention marks a significant shift in Australia's aged care funding landscape. While it presents new considerations for residents and their families, it also aims to bolster the sector's financial health.

Staying informed and seeking professional guidance will be key to adapting to these changes effectively.

For further information, please refer to the Department of Health Website.

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