How Aged Care Can Affect Your Age Pension (And What You Can Do About It)…
When planning for aged care—whether for yourself or a loved one—most people are focused on the emotional and logistical decisions. However, few realise how significant the financial implications can be, particularly when it comes to the Age Pension. Understanding how aged care interacts with your pension entitlements can help you avoid costly mistakes, optimise your cash flow, and make informed choices that support your future wellbeing.
From what you do with the family home to how you pay for accommodation; each decision can influence your eligibility and the amount of pension you receive. Here’s what you need to know to get it right.
The Family Home: Sell It or Keep It?
One of the biggest decisions when entering aged care is what to do with the family home. While it may feel logical to sell the home and use the proceeds to pay the Refundable Accommodation Deposit (RAD), this can come at a cost to your Age Pension.
Under Centrelink rules, your home is exempt from the Age Pension assets test for up to two years after you enter residential aged care. This means that during this period, the value of the home won’t reduce your pension entitlement. If you also pay the RAD from your investments rather than the proceeds of a home sale, you may be eligible for a higher Age Pension and significantly increase your income.
By contrast, selling the home adds its value to your assessable assets, which could reduce or eliminate your pension altogether. And while it might simplify things in the short term, it may lead to higher aged care fees, particularly if your total assessable assets rise above key thresholds.
Holding onto the home could also provide flexibility down the track. You may be able to access equity via the Home Equity Access Scheme (HEAS) or a reverse mortgage, providing more funding options for care and lifestyle expenses.
Paying for Care: Choices Matter
When you move into aged care, you generally have to pay for your accommodation via a RAD, a Daily Accommodation Payment (DAP), or a combination of the two. How you choose to pay impacts both your Centrelink entitlements and your aged care costs.
The RAD is counted as an asset under the aged care means test, but it is not deemed to earn income. This can result in lower means-tested care fees compared to using investment income, which is both asset- and income-tested. If you use your investment portfolio to pay the RAD rather than liquidating your home, the income test may work more in your favour, helping to lower ongoing aged care fees while maintaining or even increasing your pension.
Let’s look at a simplified example: Betty has an age pension of $4,250 a year, owns a $1 million home and has $650,000 in investments. If she sells the home and pays a $500,000 RAD to get into a facility, leaving $1.15 million in investable assets, she may lose her pension and face higher care fees. But if she keeps the home (exempt from pension asset tests for two years) and uses her investments to pay the RAD, her Age Pension could rise to nearly $30,000 a year, and her care fees would be significantly lower.
These trade-offs can be complex and highly individual. What works for one person might not be ideal for another, depending on income, family circumstances, and lifestyle preferences.
Why Professional Advice is Essential
Navigating aged care can be emotionally and financially overwhelming. There’s pressure to act quickly, especially within the short window to decide how to fund accommodation. But these decisions can have long-term consequences on your cash flow, pension eligibility, and estate planning. Speaking with an Aged Care Financial Adviser can help you explore every option, understand the impact of your decisions, and map out a strategy that’s right for you or your loved one. From Centrelink rules and government subsidies to long-term funding and legacy planning, expert advice offers clarity and confidence in what’s often a confusing time.
At Priority Advisory Group, our Aged Care specialists take the time to understand your situation and provide personalised advice to help you balance care needs with financial wellbeing.
The Right Aged Care Strategy Can Protect Your Age Pension
Aged care planning is not just about finding the right facility—it’s also about protecting your income, preserving your assets, and giving your family peace of mind. By understanding how your choices affect your Age Pension, and seeking expert advice before making key decisions, you can take control of your financial future. Call 1300 349 188 or visit contact our Aged Care team to speak with a specialist today. Don’t wait—planning now could mean more choices and better outcomes for you and your family.