RAD, DAP and the Age Pension
The pension rules can make RAD the smarter choice — even when the numbers say DAP.
The key distinction
This is the single most important thing to understand about RAD and the pension:
RAD is exempt from the Age Pension assets test.
But RAD is counted in the aged care means test.
These are two different tests, run by two different systems, with two different outcomes. Confusing them is one of the most common and costly mistakes families make.
Age Pension assets test
The Age Pension is means-tested. If your assessable assets exceed certain thresholds, your pension is reduced or eliminated.
Paying a RAD reduces your assessable assets for the Age Pension. This means:
- If you have $600,000 in savings and pay a $500,000 RAD, only $100,000 counts toward the pension assets test
- This could increase your pension entitlement by thousands of dollars per year
- For borderline cases, paying a RAD can be the difference between receiving a full pension, part pension, or no pension at all
Aged care means test
Separately, the aged care means test determines your means-tested care fee — an additional daily fee charged on top of accommodation costs.
For this test, RAD is counted as an asset. So paying a RAD doesn't reduce your means-tested care fee — but it also doesn't increase it (it's the same amount either way, just in a different form).
DAP and the pension
If you choose DAP (keeping your money instead of paying a lump sum):
- Your money remains in your bank account or investments — it's fully assessable for the pension
- You may receive a lower pension (or no pension) because your assessable assets are higher
- DAP payments don't reduce your assessable assets — they're an expense, not an asset conversion
The strategic play
For some families, paying a RAD makes sense purely for pension purposes — even if the raw cost comparison slightly favours DAP.
A single pensioner has $650,000 in assets. Without paying RAD, they receive minimal pension (~$2,000/year).
If they pay a $500,000 RAD, assessable assets drop to $150,000 → they receive a much higher pension (~$22,000/year).
The extra $20,000/year in pension over a 3-year stay = $60,000 — which may more than offset the RAD retention cost of $30,000.
This is why the RAD vs DAP decision can't be made with a simple calculator alone. The pension interaction can completely change the answer.
Get specialist advice
The interaction between RAD, DAP, the Age Pension, the aged care means test, and the family home is genuinely complex. A specialist aged care financial advisor can model your specific situation and identify the optimal strategy.
Aged care financial advice typically costs $2,000–$5,000 and can save tens of thousands of dollars over the course of a stay.
This information is general in nature and does not constitute financial advice. Pension entitlements depend on individual circumstances. We strongly recommend speaking with a specialist aged care financial advisor or contacting Services Australia for a means test assessment.