The retention rule: how much of a lump sum the home keeps, and for how long

Before November 2025, a refundable lump sum for a room came back in full, less anything the family had agreed could be taken out. That changed under the new Aged Care Act. Now the home keeps a small part of the lump sum each year, for up to five years. This is called retention.

Here's how it works, and what it means for the amount refunded later.

What retention is

When your parent pays all or part of the room price up front, as a refundable accommodation deposit (RAD), the home must keep a share of it:

• How much: 2% of the balance a year.
• How it's worked out: day by day, on the balance held that day.
• How it's taken: in instalments, at least once every three months and no more than once a month.
• For how long: up to five years, counted from the day a lump sum was first paid.
• Refunded? No. Amounts properly kept as retention don't come back. If a home takes too much, it has to repay the extra.

The same rule applies to a refundable accommodation contribution (RAC), the lump sum paid by people on low means.

The five years

Only days your parent is actually in care count towards the five years. Approved leave from the home counts as days in care. So if your parent moves in, the clock runs. If they leave care altogether for a while, those days don't count.

Once five years of retention have been taken, no more is taken, even if your parent stays longer.

How much it adds up to

Because retention is worked out on the balance each day, and each deduction lowers that balance, the amount taken shrinks slightly over time.

In words:

• In the first year, retention is close to 2% of the starting balance.
• Over five full years, it's a little less than five times that, because the balance keeps falling.
• If other amounts are drawn from the lump sum, such as fees, the balance falls faster, and retention is smaller again.

What the home can't do

• It can't ask for a top-up. The home can't make your parent put money back into the lump sum to replace retention.
• It can't raise the daily payment because of retention. If your parent paid part of the price as a lump sum and the rest daily, the daily part is worked out as if the retention hadn't been taken. Retention on its own doesn't push the daily payment up.

This is different from drawing fees or the daily payment out of the lump sum. Those deductions do lower the balance in a way that can increase the daily part, and the home can ask your parent to keep the balance at the agreed level.

If a home asks for a top-up because of retention, ask it to explain in writing. The Aged Care Quality and Safety Commission can help if it isn't resolved.

Who it applies to

• People entering care from 1 November 2025 who pay all or part of the room by lump sum.
• People under the "no worse off" rule who first enter an aged care home after 31 October 2025. They may pay some fees under the older arrangements, but retention still applies to their lump sum.

People who entered an aged care home before November 2025 generally aren't charged retention, unless they have a break of more than 28 days, or opt in and move to another home. Opting in on its own isn't enough. If you're not sure which rules apply, ask the home or Services Australia.

What it means for the refund

When your parent leaves the home, the refund is usually due within 14 days. If they're moving to another aged care home and gave more than 14 days' notice, it's due on the day they leave. If your parent dies, the home has 14 days from being shown probate or letters of administration. Where there's no probate, other evidence the home accepts can be used instead.

The refund is the lump sum less:

• the retention taken (for up to five years); and
• anything else drawn from it with your parent's agreement, such as fees or the daily payment.

The home's statements should show each retention deduction. A smaller balance can also slightly change the means-tested contributions, so it's worth checking with Services Australia whether anything needs reporting.

Weighing it up

Retention is one part of the cost of paying a lump sum. Families usually look at it next to the daily payments the lump sum avoids, what the money could otherwise earn, and how a lump sum affects the fees and the pension. Our guide to whether the daily payment is just interest walks through that comparison.

The Aged Care Costs calculator compares the ways of paying for the room, year by year, over a stay of one to ten years that you choose. Where a lump sum is part of the comparison, it includes the retention taken and the balance left. For future rises in the daily payment, we assume prices rise about 2.8% a year, based on the Reserve Bank's forecast. This is our estimate, not a government figure. Those figures are labelled as estimates. A note beside the totals explains that the means-tested contributions are left out, and shows today's daily amounts for them.

Before deciding how much to pay as a lump sum, consider talking it through with a licensed financial adviser who specialises in aged care.

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