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Refundable Accommodation Deposits: RADs

Refundable Accommodation Deposits (RADs) in More Detail

On the July 1, 2014 changes to Aged Care provisions brought about the introduction of the Refundable Accommodation Deposit (RAD) and Daily Accommodation Payment (DAP) - replacing the previous accommodation bonds and charges that used to apply in relation to entry into residential aged care.

You may pay your accommodation payment using a RAD, DAP or combination of both and have up to 28 days after you enter care to decide on your preferred payment method. Aged care homes cannot refuse to offer you accommodation based on your preferred payment approach. We discuss the interchangeability of RADs and DAPs elsewhere and you should understand how DAPs are calculated.

If within those first 28 days you decide to pay a RAD, then you have 6 months to pay, but you must pay the full DAP until the RAD is paid.

Refundable Accommodation Deposit (RAD)

The RAD is an accommodation deposit set by individual aged care homes according to the quality, location and features of the accommodation - for example, shared or single accommodation, with or without ensuites, separate bedroom and lounge room. Accommodation must be advertised on the Government MyAgedCare website and a facility cannot currently charge a RAD of more than $550,000 unless they receive approval from the Aged Care Pricing Commissioner.

The prices shown on the MyAgedCare website are the maximum prices chargeable; and you should seek wherever possible to discuss a reduction in the "advertised rate" as an "agreed price". As elsewhere in business - and this is a business - some providers offer better value than others. The available data suggests that discounts are more likely where you are able to be flexible in terms of location or seeking accommodation at the "top end of the market".

Two major issues: 1) Seek advice before agreeing the payment of any RAD to ensure it is competitive and you have explored available alternative accommodation in terms of value and quality, and 2) Do not presume the payment of a RAD, compared to a DAP, is always the best approach. Additionally, advice is strongly recommended if family members are contemplating contributing to RAD; it can have legal implications and impact fee levels.

The RAD differs from the previous "accommodation charge" in that the accommodation facility is not typically able to make any deductions from a RAD while it is place. Generally, it must be fully returned to you within 14 days of your leaving the aged care facility, and the Australian government guarantees a repayment of a lump sum if the aged care home becomes bankrupt or insolvent or for whatever reason is unable to refund your lump sum at the end of the aged care stay.

Under the "Living Longer, Living Better" reforms, a resident must be left with a minimum asset value of 2.25 times the basic age pension at the time of entry. That sum can change quarterly, but currently it means a resident must be left with at least $58,500 if they choose to pay for their accommodation entirely via a RAD (as at October 1, 2023).

RAD Pricing

RAD pricing will vary between the different providers, bearing in mind that it is a direct reflection of the quality of accommodation being offered and provided - not the quality of care - which must meet the same standards regardless of the accommodation being provided. RAD payments do differ quite significantly across Australia, and between different locations in each State, as there is typically a connection between these costs and property costs in the locale in which accommodation is provided.

This variability in pricing is illustrated in the chart below, drawing on data from StewartBrown.

Note that many residents are now choosing to pay in the form of the daily accommodation payment (DAP) and this is a function of the RAD level and maximum permissible interest rate (MPIR). Our expectation is that with the recent substantial increase in interest rates (and DAP payments) there will be a shift to paying for accommodation towards RADs.

In general, we remain unconvinced that this is the best funding mechanism available, both for customers and operators. We again state the view that we believe that the RAD concept is probably inappropriate; the industry should move to simply "competing" on DAP rates or being funded on an insurance basis. The "headline" RAD figures also give an inaccurate impression of the actual capital required by most Australians to fund any residential aged accommodation they may require, and therefore leads to many seniors over-saving/budgeting in retirement.

When an individual moves into aged care accommodation it is not unusual for relatives to contribute to paying a RAD - whether for entirely altruistic reasons or because they wish to avoid the sale of assets within an estate. This approach can have a negative impact in terms of fees payable, as it is included for the purposes of calculating the means tested care fee and, perhaps more importantly, the RAD is returned to the estate of the individual should they die in accommodation. Therefore, great care needs to be taken to ensure that the funds are returned either through the will of the individual or otherwise legally. Advice before contributing to a RAD is essential.

The Future

It is clear that a number of providers, and particularly those in the private sector, are marketing some facilities with an emphasis on "Club" or luxury services - including superior accommodation, greater menu choices, upgraded furnishings and fittings. There is absolutely nothing wrong in the segmentation of the market, but you must ensure that you are obtaining value - increasing RADs should reflect increasing residential amenity or, the be frank, increasing real estate costs in the location of the facility.

Beware providers who are not prepared to provide significant details around their offers, require you to contact the salesperson directly before providing any details and tend to rely upon glossy audio-visual presentations. In these situations it is the substance and quality of the accommodation and services provided that matter, rather than the marketing material - and getting into detail is an absolute necessity if you or a loved one are not to "repent at leisure" regarding any decision.

Seek professional advice or at a minimum conduct due diligence with a trusted family member to provide perspective, and to ensure that the optimal decision has been made in terms of funding via a RAD, DAP and/or combination.

Please note prior to making any Inquiry: Financial regulations regarding the provision of specific advice mean that it is impossible for us to provide assistance unless it is provided as part of professional advice for which fees will apply. If your circumstances are not complex and you don't require or want to pay for professional advice you should direct any queries in relation to Aged Care to Myagedcare.

If you would like to arrange professional advice in relation to the above matters, please complete the Inquiry form below providing details and you will be contacted accordingly. You will receive a fee quotation in advance of any advice or services being provided.