Nick Bruining: Donald Trump, increasing aged care costs and super among the big changes in 2025

With the Christmas decorations now packed away, all eyes turn to the year ahead and how 2025 might play out.

The aroma of election love is thick in the air, with the scent of barrelled pork high on the list.

Notwithstanding pre-election sweeteners, Australians face a number of challenges over the next few months.

Without question, the greatest effect on investment returns will be what the newly installed Trump administration dishes out in the way of changes to the US economy.

These changes are likely to have a direct impact on our largest trading customer, China.

Already struggling with a domestic downturn, China relies heavily on exports of manufactured goods to countries such as the US.

Don’t underestimate the effects a big Chinese downturn would have on the Australian economy. Much of our success over the past three decades is directly attributable to China’s phenomenal growth.

That growth translates into massive imports of Australian commodities such as iron ore, nickel, lithium, coal and gas. You can throw grain, lobster and Margaret River reds into the list as well.

The year 2025 will also see a suite of already legislated changes kick in.

Heading the list is the significant restructuring of aged care. While the reforms are across the board, it’s the impact on individual hip pockets that counts.

Increases in aged care costs ultimately result in reduced inheritances for your loved ones.

For starters, the refundable accommodation deposit, or RAD, has already gone up. The RAD is the lump sum amount that “buys” you a room in an aged care facility.

Before the increase, the maximum RAD that could be charged without prior government approval was a non-indexed amount of $550,000. That’s now $750,000 and indexed.

Until July this year, the full amount of the RAD would normally be refunded when the resident left the facility. From July and for anyone that enters after, the aged care facility can retain 2 per cent of the RAD amount each year, subject to a five year maximum.

For example, someone who pays the full $750,000 RAD and stays in their aged care home for five years, will cop the full 10 per cent retention.

Assuming the person passes away, the family would receive a reduced RAD refund of $675,000, instead of $750,000

In addition to this, the means-tested daily care fee currently has a lifetime individual cap of about $85,000. From July, that leaps to $150,000, meaning an instant increase of about $65,000.

July will also see the removal of the COVID-inspired freeze on deemed interest rates, used for calculating pensions and other payments under the income means test.

Deeming rates are to calculate the deemed income earned on financial assets. The financial assets include cash, bank accounts, share and bond portfolios, managed funds, account-based pensions, super accumulation funds for those aged 67 or more, and gifts over the gifting limits.

Until July this year, the first $62,600 for singles and $103,800 for couples is deemed to be earning just 0.25 per cent per annum with amounts above both thresholds, deemed to be earning 2.25 per cent.

Simply comparing the deemed rates to the Reserve Bank of Australia’s cash rate shows that if deeming rates were reset to “normal”, they could easily increase to 3 per cent and 4.5 per cent. Conveniently, this freeze removal occurs after the election.

Expect this issue to be raised in the lead-up to the election because any increase is likely to affect tens of thousands of pensioners.

Superannuants can expect an increase to the transfer balance cap, or TBC. This is the amount that an individual can move from accumulation to pension phase.

While not announced yet, industry experts expect the TBC to lift from $1.9 million to $2m on July 1.

Be aware that once triggered by starting an income stream investment, your TBC is set for life. That means that if your TBC was set at $1.7m two years ago, that’s your limit.

The controversial new 15 per cent tax on super balances above $3m (not indexed) did not get through the Senate.

While that kills it off for now, the Government says that it will be dealt with again after the election. Expect that too to become an election issue.

One other change to apply from July 1 is the final increase to compulsory employer super from 11.5 per cent to 12 per cent.

It’s been a long journey when you consider the implementation of compulsory super dates back to 1992 when the rate then was 3 per cent of earnings.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association