Highlights

  • Combination RAD and DAP allows aged care residents to split accommodation costs between lump sum and daily payments.
  • The RAD is a refundable lump sum, while the DAP is an ongoing daily charge on the unpaid balance.
  • Residents can choose different split ratios (e.g., 50/50 or 70/30) depending on financial needs.
  • The DAP is calculated using the MPIR applied to the unpaid RAD portion.
  • Additional RAD payments can be made later to reduce ongoing DAP costs.
  • RAD is generally refundable, while DAP is a non-refundable ongoing expense.

A combination RAD and DAP payment is a structure for paying residential aged care accommodation costs that involves paying part of the cost as a Refundable Accommodation Deposit (RAD) and the remaining unpaid portion as a Daily Accommodation Payment (DAP). It allows residents to tailor the balance between lump sum and ongoing payments.

The choice of split — for example, 50 per cent RAD and 50 per cent DAP, or 70/30, or any other combination — is decided by the resident at the time of entering care (with the ability to change within specific timeframes).

The DAP is calculated as the unpaid RAD portion multiplied by the Maximum Permissible Interest Rate (MPIR), divided by 365 for the daily amount. The structure is designed to be flexible and to suit different family circumstances.

How a combination RAD and DAP payment works

When entering residential aged care, the resident reviews the advertised accommodation price and chooses how to fund it. If they elect a combination structure, they pay an agreed lump sum (the partial RAD) and pay a DAP on the remaining unpaid portion.

Over time, the resident can typically make additional payments toward the RAD, which reduces the unpaid portion and lowers the ongoing DAP. Specific provider rules apply to such payments.

At the end of care, the RAD portion held by the provider is refunded to the resident or estate, generally without interest, after the application of any agreed deductions or daily care fees that were drawn from the RAD.

Who commonly uses combination structures?

Combination RAD and DAP structures are commonly used by:

  • Residents who want some Capital preservation but cannot or prefer not to commit the full RAD
  • Families balancing inheritance plans with affordability of ongoing costs
  • Residents whose advisers recommend mixed structures based on Cash Flow, means testing and Investment opportunities
  • Couples coordinating aged care funding with the household's broader financial position
  • Residents adjusting initial choices over time as circumstances change

Combination structures provide flexibility but also require careful planning and review.

Key features

  • Mix of lump sum (RAD) and ongoing daily payment (DAP)
  • Resident chooses the split, within provider terms
  • DAP applies only to the unpaid RAD portion
  • Additional payments toward the RAD reduce the DAP
  • RAD portion is refundable on departure or death
  • Specific rules on changes after entering care
  • Subject to means testing and government oversight

Potential benefits

Combination RAD and DAP structures can offer several potential benefits.

Tailored balance between lump sum and ongoing payments allows residents to design a structure that matches their available capital, income and goals.

Partial capital preservation supports estate planning, with the partial RAD remaining refundable at the end of care.

Flexibility over time allows residents to add to the RAD or rebalance the structure as circumstances change.

Means testing considerations can favour different combinations for different residents, supporting better Centrelink and aged care outcomes when advised properly.

Key risks and limitations

Combination structures also involve complexity that should be carefully considered.

  • Calculating the optimal split requires modelling RAD/DAP trade-offs, MPIR levels and means testing
  • Ongoing DAP payments add to monthly cash flow obligations
  • Adding to the RAD over time may require additional planning and documentation
  • Means testing interactions can be complex with multiple aged care fees
  • Decisions made under pressure can lead to suboptimal structures
  • Provider rules and timeframes for changes must be observed

Tax, social security and aged care considerations

Combination structures interact with aged care means testing in nuanced ways. The RAD portion is generally exempt from the Centrelink asset test for Age Pension purposes but is included in the aged care means test for fee calculations. The DAP itself is an ongoing expense rather than an asset or income item.

Aged care means-tested care fees consider income and Assets, with the family home treated under specific rules depending on whether a 'protected person' lives there. The interaction of RAD/DAP combinations with these rules can be complex.

Aged care providers must publish advertised prices, offer combination Options and follow detailed rules around payment structures, agreements and refunds.

How it fits into retirement and aged care planning

Combination structures are a key tool in tailored aged care planning, allowing families to balance the competing objectives of estate preservation, cash flow management and means testing optimisation.

Specialist aged care financial advisers can help model different RAD/DAP splits and project total costs, refundable amounts and means-tested fee impacts over time. Such advice is often essential given the complexity of the rules and the size of the decisions involved.

Combination structures can be reviewed and adjusted as circumstances change, supporting flexible long-term planning.

Common mistakes to avoid

  • Choosing a split without modelling long-term impacts
  • Failing to consider Centrelink and aged care means testing together
  • Underestimating ongoing DAP costs over a long stay
  • Ignoring opportunities to add to the RAD over time
  • Not seeking specialist aged care advice
  • Treating the partial RAD as a 'safe' deposit without considering Opportunity cost

Questions to ask before using this instrument

  • What combination of RAD and DAP best fits my circumstances?
  • How do different splits affect total long-term cost?
  • How does the combination affect my Centrelink and aged care fees?
  • Should I plan to add to the RAD over time?
  • What is the role of the family home in funding the structure?
  • Have I obtained specialist aged care financial advice?