Can I use annuities to assist with aged care fees?
By Sean Bailey
Financial Adviser, Lifestyle and Care
Sean is an experienced aged care adviser who is committed to helping families make clear and confident financial decisions when moving a loved one along their care journey.
Many older retirees face the challenge of funding aged care while preserving their financial security. Aged care fees can be complex and substantial, and following changes introduced in November 2025, costs have increased for new residents.
A strategy that is increasingly being considered is the use of annuities as part of an aged care funding plan, especially if the former home has been sold to pay the aged care accommodation and there are left over house sale proceeds causing the pension to reduce.
What is an annuity?
An annuity is a financial product that provides a regular income stream in exchange for an upfront investment. You can choose to have the capital returned in full at the end or gradually paid out as part of regular income payments. Depending on the type of annuity selected, payments may continue for a fixed period or for the lifetime of the individual. When incorporated into an aged care strategy, annuities can offer some benefits.
For instance, under current means-testing rules, certain lifetime annuities receive concessional treatment for both Centrelink pension and aged care fee assessment purposes. Depending on individual circumstances, this can help reduce assessable assets and income and may lower means-tested aged care fees.
How annuities helped Barbara protect her pension and fund aged care
My client, Barbara*, moved into an aged care home, and her Refundable Accommodation Deposit (RAD) was $540,000.
At the time, she was receiving the full Age Pension, had some savings, and held most of her wealth in her home. The family home was sold within three months, allowing the RAD to be paid in full. This resulted in $930,000 in cash remaining, which reduced her Age Pension entitlement.
The concern for Barbara’s family was what to do with the leftover $930,000. Investing in a higher interest savings account would help cover some of the lost income, however, the interest is fully assessable for tax purposes. Paying the accommodation amount as a RAD meant they weren’t paying the Daily Accommodation Payments (DAP), but the means-tested fees increased as a result of the property sale and the RAD being assessed as an asset.
After speaking with Barbara’s family, we were able to understand that they were seeking an investment that provided capital certainty, while also providing regular income, and, if possible, help improve Centrelink Age Pension and reduce the means-tested aged care fees.
We advised Barbara and her family on an aged care-friendly lifetime annuity that provided capital security while providing strong ongoing monthly payments, with no tax payable on the income based on her circumstances. This also improved her Centrelink Age Pension by approximately $7,000 per annum when compared with keeping her money in the bank.
Despite these advantages, annuities are not suitable for everyone. Factors such as liquidity needs, estate planning objectives, health status, and overall financial circumstances must be carefully evaluated. It is important to obtain the right financial advice to ensure that any annuity solution is appropriate and suitable for your needs and objectives.
Reach out if you need support
If you have any questions or need guidance on any aspect of the aged care finance journey, please do not hesitate to get in touch. With a specialist division of financial advisers who are accredited in aged care advice, we have a team that can talk you through your options and explain the various financial considerations. Our team can also connect you with trusted organisations who can help guide you through the care choices that best align to your unique situation. Learn more about our Lifestyle and Care team.
*All names and figures have been changed for privacy purposes.
This article is general information only and does not take into account your personal circumstances. The illustrative example is based on rules that apply as at June 2026 for Aged care, Centrelink, Lifetime annuity rates, and tax. These change frequently, and the strategies discussed here may not be appropriate for every family. You should seek personal advice from a qualified financial adviser, accountant, and solicitor before acting on the information contained in this article. Figures referenced in this article are current as at the date of publication and may be subject to change. Alteris Financial Group is licensed to provide personal financial advice in Australia and works with families across the country on aged care, retirement, and intergenerational wealth strategies.
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