Key Superannuation Strategies for Aged Care

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27 March 2025

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Key Superannuation Strategies for Aged Care

Considering evolving policies and retirement needs, we navigate tax strategies, funding, and transitions to aged care in this blog. It also discusses key considerations for this transition. Superannuation is critical to funding aged care services in retirement. Proper planning around accessing superannuation can minimise tax impacts and optimise retirement income.

Some of the key strategies are as follows:

Transition to Retirement (TTR) Strategy

If you’re between the preservation age and 65, you can access part of the super while working through a Transition to Retirement (TTR) income stream. This can provide an income boost or a way to gradually reduce working hours while receiving a steady income from super.
Earnings on assets supporting a TTR pension are tax-free if you are 60 or over. Also, from age 60, withdrawals from the superannuation income stream are tax-free.

Re-contribution Strategy:

If the superannuation balance includes taxable and tax-free components, you can withdraw a lump sum and re-contribute it as a non-concessional (after-tax) contribution. This can reduce the taxable portion of the super, which can lead to lower taxes on super death benefits to non-dependents (such as adult children).

Downsizer Contributions:

If you’re 55 or older (since 1 January 2024), you can make a one-off, non-concessional contribution of up to $300,000 (per person) from the sale of the primary residence. This can help increase super savings and fund future aged care needs.
Downsizer contributions are not subject to the usual super contribution caps and don’t require meeting a work test.

Age Pension and Superannuation:

Once you reach the pension age (increasing to 67), the superannuation balance will be counted in the assets and income tests for Age Pension eligibility. Effective super management may allow you to receive a partial Age Pension alongside superannuation income.

Tax Considerations for Aged Care

Various costs are involved in residential aged care, such as accommodation payments, means-tested care fees, and basic daily care fees. Proper planning is essential to manage these costs tax-efficiently.

Accommodation Payments: Refundable Accommodation Deposits (RADs) are lump-sum payments to aged care facilities. They are not subject to tax. However, if you choose a combination of RAD and Daily Accommodation Payment (DAP), the DAP is paid from income and superannuation, which may have tax implications.

Means-Tested Care Fees: Means-tested fees depend on assets and income, which includes superannuation. Careful planning can help reduce these fees by efficiently structuring income and asset withdrawals.

Gifting: Assets to family members may reduce the assessable assets and income, helping to minimise aged care fees or increase pension eligibility. However, gifting rules apply, meaning you can only gift $10,000 per financial year or $30,000 over five years without affecting the Age Pension or aged care fees.

Pension Income: If you’re receiving a pension from the super fund, income drawn from a tax-free pension account (for individuals aged 60 and over) will not be taxed. This can help manage tax obligations while covering aged care costs.

Rental Income: If you rent out a family home to pay for aged care fees, rental income may be taxable. However, you may be able to offset some of this income through deductions for expenses such as interest on a mortgage, repairs, and maintenance.

Using Super for Aged Care Costs: Drawing down superannuation in lump sums or as an income stream to cover aged care costs may be a tax-effective way to manage expenses, mainly if you are over 60 and withdrawals are tax-free.

Retaining or Selling the Family Home

One of the most significant decisions when transitioning to residential aged care is whether to sell the family home or rent it out to fund the Refundable Accommodation Deposit (RAD) or other aged care fees.
Selling may free up cash to pay a RAD, while renting may provide ongoing income but could have tax implications (assessable income) and impact Age Pension.

Aged Care and Centrelink

When calculating aged care fees or pension eligibility, superannuation and other assets will be assessed using Centrelink’s means tests.
Deeming rates apply to financial assets, including superannuation income streams and bank accounts, to calculate income for Centrelink purposes. Lowering assessable income can help reduce aged care fees or increase government support.

Home as an Exempt Asset: While you remain living in the house, it is exempt from Centrelink’s asset test. However, once you move into permanent residential aged care, the home is only partially exempt (up to a capped value), potentially increasing the assessable assets for aged care fees and Age Pension calculations.