Age Pension and Aged Care Costs

How the Age Pension Affects Aged Care Costs.

How the Age Pension Affects Aged Care Costs

Age Pension and Aged Care Costs

How Aged Care Costs Are Structured

Aged care in Australia, whether delivered at home or in a residential setting, comes with a range of fees.

These fees can include:

  • Basic Daily Fee – Covers daily living expenses like meals, cleaning, and laundry. Everyone pays this unless exempt.
  • Means-Tested Care Fee – Based on your income and assets, including your Age Pension. Not everyone pays this fee.
  • Accommodation Costs – Payable if you move into a residential aged care home. These may be a lump sum (RAD), daily amount (DAP), or a combination.
  • Extra Service or Additional Service Fees – Optional fees for extra comfort and lifestyle services.

The Role of the Age Pension in Fee Calculations

If you receive the Age Pension, it plays a key role in determining what you’ll need to pay for aged care. That’s because the Age Pension counts as assessable income in the means test. Here’s how that works:

  • Your pension amount (including any supplements) is included in your income test.
  • Your assets are also assessed – this includes things like your bank accounts, investments, property, and even funeral bonds (depending on the type).
  • Centrelink (Services Australia) or the Department of Veterans’ Affairs (DVA) will use this information to determine what portion of your aged care fees the government will subsidise.

In short, the higher your income and assets, the more you may be asked to contribute toward your care costs. Conversely, those on a full Age Pension with minimal other assets may pay very little.

Residential Aged Care and the Age Pension

Let’s take a closer look at how costs work when you’re entering a residential aged care facility. When moving into care, you’ll typically be asked to pay:

Basic Daily Fee

Set at 85% of the single basic Age Pension rate. This means if your pension increases, so will your daily fee. As of July 2025, this fee is around $63.82 per day.

Means-Tested Care Fee

Calculated by Centrelink based on your Age Pension and other income/assets. This fee is capped annually and over your lifetime (currently $33,309.29 per year and $79,942.44 lifetime cap as of July 2025).

Accommodation Payment (RAD/DAP)

If your assets exceed a certain threshold, you may be asked to make an accommodation contribution. You can pay this as a Refundable Accommodation Deposit (RAD), a Daily Accommodation Payment (DAP), or a mix of both. The amount depends on the facility and your means test.

Importantly, if you’re on a full Age Pension and have assets below the relevant thresholds, the government may cover some or all of your accommodation costs.

Home Care Packages and the Age Pension

For those staying at home and receiving services through a Home Care Package, fees work a little differently. The Age Pension is still assessed as income, and it may affect the following charges:

Basic Daily Fee

This is an optional fee and is currently set at up to $12.79 per day (as of 2025). Some providers waive it depending on circumstances.

Income-Tested Care Fee

This fee is means-tested and applies on top of the basic fee. Age Pension recipients with no additional income may pay nothing. However, part-pensioners or those with additional income might pay more. It is capped annually and over your lifetime.

How to Complete the Income and Asset Assessment

To be assessed for your contributions, you need to complete one of the following forms depending on your pension status:

The assessment generally takes around 3 to 4 weeks, and it’s best to submit it as early as possible to avoid delays in admission or confusion about fees.

Examples: How the Age Pension Affects Aged Care Costs

Full Age Pension, Low Assets

Mary, aged 87, is not a home owner, has been renting a family home, has no super, owns minimal personal assets, and is on a full Age Pension. She enters residential care and pays only the basic daily fee. The government subsidises her accommodation and care costs.

Part Pension, Family Home, Savings

James is on a part Age Pension and owns his home. After entering care, his home is assessible, but his savings mean he pays a partial means-tested care fee and a negotiated accommodation payment.

Changes Over Time: Fee Reviews and Pension Adjustments

Centrelink reassesses your fees periodically, especially if your income or assets change. For example, if you sell your home, downsize, or your pension status changes, your fees may be recalculated. Fees can also change due to indexation (usually in March and September for the Age Pension and quarterly for accommodation thresholds).

What You Can Do to Prepare

  • Get your financial documents in order early.
  • Use the My Aged Care fee estimator tool to get a ballpark idea of what you might pay.
  • Submit your means test forms to Centrelink as soon as possible.
  • Talk to the aged care facility about payment options, most are open to negotiation if your situation is constrained.