When people move into aged care, they often assume their Age Pension will take a hit — or disappear entirely. But in some situations, your pension could actually go up. Yes, really.
The key lies in how you pay for your aged care and what you decide to do with the family home.
What happens to your home and pension in aged care?
Your home has special treatment under the Centrelink and aged care rules:
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For pension purposes, your home is exempt from the assets test for up to two years after you move into aged care.
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The Refundable Accommodation Deposit (RAD) — that’s the lump sum you pay for your room — is also exempt from the pension assets test.
So if you keep your home and use your investments to pay the RAD, both the home and the RAD can be exempt — which may increase your Age Pension, or make you eligible when you previously weren’t.
Aged care fee rules are different
Under the aged care means test, your home is only counted up to a capped value of $206,663 (as at July 2024), even if it’s worth far more. Meanwhile, the RAD is counted as an asset — but not as income. That can help reduce the means-tested care fee, which is calculated using both assets and income.
So what does this look like in practice?
Meet Sally
Sally is 84. She owns a home worth $1 million and has $650,000 in financial assets. She currently receives around $4,250 a year in Age Pension.
She’s looking at a residential aged care home with a RAD of $500,000.
Option 1: Keep the home and pay the RAD from investments
Pension: Her Age Pension jumps to $29,874 per year — an increase of more than $25,000.
Means-tested care fee: Just over $10,000 per year, until she reaches the lifetime cap (around 8 years).
Other benefits: The home is exempt from the pension assets test for 2 years and only assessed up to the capped value for aged care.
She keeps her home — which gives her more flexibility. She could rent it out, sell it later, or access equity through the Home Equity Access Scheme (HEAS) or a reverse mortgage if needed.
Option 2: Sell the home to pay the RAD
Pension: Her Age Pension becomes $0 — she’s now over the asset threshold.
Means-tested care fee: Jumps to over $26,000 per year, until she hits the lifetime cap in about 3 years.
Income: With $1.15 million in investments (assuming 5% return), she’ll earn about $57,500 annually — but pay significantly more in care fees.
In this case, keeping the home helps Sally increase her pension, reduce her aged care fees, and improve her cashflow. It’s one of those rare moments where reducing your assessable assets can actually give you more financial breathing room.
The bottom line?
How you pay for aged care — and whether you keep or sell your home — can make a big difference to your pension and the fees you pay.
But everyone’s situation is different. Before you sell the family home or make major financial changes, get expert advice. A Retirement Living and Aged Care Specialist adviser can help you make informed choices that work for you and your family.
Here’s where a Retirement Living and Aged Care Specialist adviser can help. They’ll work through your personal situation and explain how things like selling your home, paying a RAD, or keeping some funds invested will impact your finances, your fees, and your cashflow.
Because while aged care can be complex, the right advice can make all the difference — and in some cases, even boost your income.
