The recent Retirement Income Review* examined all aspects of Australia’s retirement system and concluded that it provides well for the needs of the vast majority older Australians, but it is complex and not well understood. In particular, there is a real lack of understanding and engagement with issues such as aged care.

As a young woman I recollect my mother in-law telling me that as you get older, you really don’t feel any different inside. She sometimes caught herself reflected in a window or mirror and instinctively thought “who is that grey-haired lady?” Perhaps this reluctance to recognise our own ageing process is why so few of us take the time and effort to think about how we can continue to live a good quality of life as we age.

People are often unaware of the extensive range of health and aged care services available to older Australians, especially directed to assist ageing at home. These services are heavily subsidised and are usually means-tested to suit each person’s financial situation.

A lack of knowledge about aged care services and their cost often means many older Australians do not maximise their quality of life in retirement. There is a reluctance to spend down retirement savings for fear of the costs of these services in later years, yet most people’s expenditure does not increase significantly during retirement

Understanding the options and the costs involved in aged care not only gives peace of mind but allows you to plan your future financially. In this brief article I will outline some of the support available for aged care. For most people this is support for ageing at home, as only around 20% of Australians over 80 live in residential aged care.

Aged care services include:

The Commonwealth Home Support Program

This program provides low-level support at home. It is designed for people who are generally able to manage but just need some help with daily tasks. Services include access to nursing, meals, home modification and transport. People needing this service apply on-line through My Aged Care and an assessor from the Regional Assessment Service will visit to determine suitability for this program. Care is not formally means tested. People may pay a co-contribution payment, which varies based on the services required and the fees set by providers.

Home Care Packages

These packages provide higher-level home support for those with more complex care needs. The program allows people to stay at home for as long as possible by subsidising in-home services and services to help stay connected with the community.

People wishing to apply for a Home Care Package register with My Aged Care and are then referred for a comprehensive assessment by an Aged Care Assessment Team. The assessor will recommend one of four levels of packages based on the person’s care needs. These are basic, low, intermediate or high packages which range from providing just a few hours per week to a daily schedule. Once a package is approved, you choose a provider, and the government then pays the provider a subsidy to arrange the package of services you require.

Home Care Packages range in value from $9,026 at Level 1 to just over $52,378 at level 4, which includes administrative costs.  Due to the government subsidy the basic fee for consumers is far less ranging from $9.72 per day ($3,548 annually) for level 1 care, to $10.85 per day ($3,960 annually) for a level 4 package. Full pensioners and people with an income up to $28,101 do not pay any income-tested care fee, but those on higher incomes may be required to pay an additional income-tested care fee of up to a maximum of $31.14 per day.

There are often waiting times involved in applications for Home Care Packages. Individuals with higher or more urgent needs are prioritised, but others may have to wait some months to receive a package.

Residential Care

Residential care provides full-time care and accommodation for people who are no longer able or willing to live independently. All residents pay the basic daily fee (set at 85 per cent of the single base rate of Age Pension) to cover daily living costs, such as meals, cleaning and laundry. Above a certain income level, residents may also be required to pay a means-tested care fee and/or fully or partly cover their accommodation costs.

Where means-tested care fees are levied, the value of the family home is capped, but will not be included in the assets test if a partner, dependent child or long-term carer continues to live there. Should the property be sold, the full value is included in the means test.

Costs for residential care accommodation can be paid as a refundable lump-sum deposit (RAD), as a non-refundable ongoing daily accommodation payment (DAP) or a combination of both. Increasingly, people are choosing to pay their accommodation fees daily, rather than as a lump sum. In 2017-18, around three-quarters of aged care residents paid their accommodation fees by either a daily fee, or a combination of the daily fee and the refundable deposit.

There are both annual and lifetime caps on means-tested care fees for in-home and residential care to contain costs for those who may require such services for long periods of time. The current lifetime cap on income-tested care fees is $68,013, however less than 1% of age care users ever reach this cap.

People have a range of options for funding aged care, depending on their total means and how their assets are invested. Currently a large proportion of in-home and residential care recipients are full-rate age pensioners who meet care costs from this income. Private income streams are also used by drawing down financial assets such as superannuation or, increasingly, by accessing housing assets through equity release.

We would love to hear your views on the funding of age care and the experiences you have had.  You can make your comments below.

^Deborah is a Professorial Fellow at Monash University and a member of the Reserve Bank of Australia Payments System Board. She is also a  Non-Executive Director of SuperEd.  In 2019 Deborah was appointed by the Treasurer Josh Frydenberg to the 3-member panel for the Retirement Income Review.

More details on all of these matters are available at

* Retirement Income Review, The Commonwealth of Australia the Treasury, July 2020. (All data in this article unless specified otherwise are drawn from the Review or the My Aged Care website)