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Aged Care interest rate increased on 1 January – impact on fees
Article published on: 05-01-2023
The Maximum Permissible Interest Rate (MPIR) increased from 6.31% for the prior quarter to 7.06% from 1 January to 31 March 2023.
The increased MPIR impacts clients entering care on or after 1 January 2023 who are:
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self-funded residents paying a Daily Accommodation Payment (DAP), or
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aged care residents who are partially supported, and who choose to pay some of their accommodation contribution as a Refundable Accommodation Contribution (RAC).
The increase in the MPIR has a different impact on self-funded aged care residents than it does partially supported residents. Whether a resident is self-supported or partially supported is based on their means at their date of entry to care.
Changes to the MPIR after entry to care do not impact existing residents, as the rate is determined at their date of entry.
Impact for self-funded residents
For new residents who are self-supported and paying the published rate, the increase to the MPIR means an increased DAP if some or all of their accommodation fee is paid as a daily amount. Put simply, the DAP is interest payable at the rate of the MPIR on any unpaid lump sum Refundable Accommodation Deposit (RAD).
Based on a RAD of $550,000, this equates to a DAP of $106.38 per day (up from $95.08 per day for the 20 September to 31 December 2022 period).
Impact for partially supported residents
For residents who are partially supported, the increase to the MPIR reduces the lump sum RAC payable (should the resident choose to pay some or all of their accommodation contribution as a lump sum RAC). This is because:
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the daily fee or Daily Accommodation Contribution (DAC), is determined based on the resident’s calculated ‘means-tested amount’, and
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the equivalent lump sum RAC is then determined based on the MPIR (ie RAC = (DAC x 365) ÷ MPIR)).
Based on the maximum DAC (currently $63.14), the maximum RAC payable would be $326,432 (down from $365,231 for the 20 September to 31 December 2022 period).
This is a complex area of aged care advice and is explained in detail from page 17 in our Guide to Aged Care Fees and Rules.
Advice considerations and implications
Clients who entered aged care prior to 1 January 2023 will not be impacted. However, new self-funded residents need to consider that should the RAD not be paid in full, the non-refundable DAP will be calculated as 7.06% of the unpaid RAD. When determining how to pay this amount, consideration should be given to:
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other investments and net returns
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transaction costs and taxes involved in disposing other assets to pay a lump sum fee
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life expectancy in care, and
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estate planning arrangements.
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