How does superannuation affect aged care fees?

The Short Answer

All superannuation is assessed for the aged care means test, regardless of whether it is in accumulation phase or pension (retirement) phase. Your super balance counts as an asset, and the income from super (either actual payments or deemed income) counts as income.

Since 1 January 2022, the previous exemption for accumulation-phase super held by non-pensioners was removed. Everyone’s super is now included in the means test.

Super in Accumulation Phase

If your super is still in accumulation phase (you haven’t started an income stream), it is treated as follows for the aged care means test:

• Asset test: The full balance is included as an assessable asset.
• Income test: Services Australia applies deeming rates to the balance to calculate a deemed income — regardless of what the fund is actually earning.

Current deeming rates (2025–26)

For example, a $300,000 accumulation balance for a single person:

• First $60,400 × 0.25% = $151
• Remaining $239,600 × 2.25% = $5,391
• Total deemed income: $5,542/year

This deemed income is added to all other assessable income when calculating the means-tested care fee.

Super in Pension (Retirement) Phase

If you have converted your super into an account-based pension (income stream), the treatment is different:

• Asset test: The account balance is included as an assessable asset (same as accumulation phase).
• Income test: The actual gross income payments you receive from the pension are counted as assessable income. Deeming does not apply to account-based pensions — the actual payments are used instead.

However, there is a deductible amount — a portion of each pension payment is treated as a return of capital and excluded from the income test. The deductible amount is calculated as:

Only the portion of each pension payment above the deductible amount is counted as assessable income.

Accumulation vs pension phase comparison

How Deemed Income Works

For assets in accumulation-phase super and for financial investments (bank accounts, shares, managed funds), Services Australia uses deeming rather than actual returns.

This means it doesn’t matter if your super fund earned 10% or lost 5% last year — Services Australia assumes it earned the deeming rates (0.25% / 2.25%) regardless.

The advantage of low deeming rates (as they currently are) is that for people with large accumulation-phase balances, the deemed income may be significantly less than actual returns, resulting in a lower means-tested care fee than if actual returns were used.

Conversely, if you are drawing a pension at above-minimum rates (e.g., 7% of the balance), the actual income assessed may be higher than deemed income would be. This is one reason some people consider the interaction between super phase and aged care fees before entering care.

Worked Example

Patricia is single, age 82, entering aged care. She receives the full Age Pension ($28,514/year) and has $250,000 in super plus $50,000 in bank savings. Her home will be left vacant (exempt for 2 years).

Scenario A: Super in accumulation phase

• Assets: $250,000 (super) + $50,000 (bank) = $300,000
• Deemed income on $300,000: $60,400 × 0.25% + $239,600 × 2.25% = $5,542
• Total assessable income: $28,514 (pension) + $5,542 (deemed) = $34,056
• Income MTCF: ($34,056 − $32,249.60) × 50% = $903
• Asset MTCF: ($300,000 − $55,000) × 17.5% = $42,875 (capped at $33,309)
• Total MTCF: $33,309/year (hits annual cap from assets alone)

Scenario B: Super in pension phase (drawing 5% = $12,500/year)

• Assets: same $300,000 total
• Super pension income: $12,500 gross minus deductible amount (~$3,000) = $9,500 assessed
• Total assessable income: $28,514 + $9,500 = $38,014
• Income MTCF: ($38,014 − $32,249.60) × 50% = $2,882
• Asset MTCF: same ($300,000 − $55,000) × 17.5% = $42,875 (capped at $33,309)
• Total MTCF: $33,309/year (same — cap applies regardless)

Planning Strategies

Changing your super structure before entering aged care can sometimes reduce fees, but the interactions are complex. Here are the key considerations:

1. Accumulation vs pension phase

If you are drawing a pension at above-minimum rates, the actual income assessed may exceed what deemed income would be. In this case, switching back to accumulation phase (if rules allow) could reduce the income component of the MTCF. However, this also means you can’t access regular income from the fund without making lump-sum withdrawals.

2. Using super to pay the RAD

Withdrawing super to pay a RAD has a neutral effect on the asset test — the super balance decreases by the withdrawal amount, and the RAD is not counted as a separate asset (because it is refundable and effectively held by the facility). However, the income from that super stops (either deemed or actual), which can reduce the income component of the MTCF.

3. Timing of withdrawals

Large super withdrawals near the date of the Services Australia financial assessment can affect the assessed income and assets. Consider the timing carefully and get advice on whether to withdraw before or after assessment.

4. Reversionary pension nominations

If one member of a couple enters care, a reversionary pension nomination ensures the pension continues to the surviving partner tax-free. This doesn’t directly affect aged care fees but is important for overall financial planning.

Common Mistakes

• Assuming accumulation-phase super is exempt. This was true before 1 January 2022 for non-pensioners, but the rule has changed. All super is now assessed.
• Withdrawing super to “hide” it. Withdrawing super and spending it before entering care may trigger the gifting/deprivation provisions. If you give away or dispose of assets within 5 years of entering care, Services Australia may still count the disposed amount as an asset.
• Ignoring the deductible amount. For account-based pensions, the deductible amount reduces assessable income. Failing to claim it (or having it calculated incorrectly) means overpaying the means-tested care fee.
• Not notifying Services Australia of super changes. Any change in super structure (switching phases, large withdrawals, starting/stopping a pension) should be reported to Services Australia, as it affects the means test calculation.

Getting Professional Advice

Super and aged care is one of the most complex intersections in Australian financial planning. An accredited aged care financial adviser can model different scenarios specific to your situation:

• Whether to leave super in accumulation or pension phase
• Whether to use super to pay the RAD (and how much)
• The impact on your Age Pension entitlements
• Tax implications of withdrawals
• How the couple asset-splitting rules interact with super

Look for advisers who hold an Aged Care Steps accreditation or are listed on the Financial Planning Association (FPA) or Association of Financial Advisers (AFA) directories. The initial consultation fee (typically $300–$500) can save thousands in correctly structured arrangements.

For a starting estimate of your aged care costs, try our cost calculator.