A closer look at the legislation underpinning the Federal Government's proposed minimum liquidity standards has revealed that aged care providers who also operate independent living units (ILUs) and retirement villages will have to retain 10% of ILU and retirement village refundable amounts under the changes.

A webinar held by the Aged Care Quality and Safety Commission (ACQSC) made no direction mention of independent living units and retirement villages being included in the minimum liquidity ratios which require residential aged care operators to 35% of cash expenses for all residential aged care providers for the previous quarter plus 10% of refundable deposit liabilities as of the end of the previous quarter for providers with refundable deposits.

However, the Exposure Draft of the Aged Care Financial and Prudential Standards 2025 shows that operators with aged care and retirement villages, which make up a significant proportion of the sector, will be captured under the ratios – a significant concern for village operators.

Bruce Bailey, Managing Director with aged care management specialists Pride Aged Living, told The SOURCE that ILU and retirement village operators typically have much lower turnover rates.

For providers operating with low levels of liquidity, having to retain 10% of refundable amounts to meet the proposed liquidity standards "could be very difficult".

"Some of the big players are saying that's the problem, because if you're doing capital works and extending your business all the time, you're recycling all that money that's coming in," he stated. 

"It shows a lack of understanding of the ILU sector and business model."

The change could lead some operators to restructure their businesses so that their ILUs are owned by a different entity to their residential aged care.

Bruce also said there will be a material "drip detriment effect" on liquidity from the change to payments in arrears, which will come in over two financial years from 1 July 2026.

The Weekly SOURCE has reached out to the ACQSC for more comment regarding the proposed ratios and how they will apply to operators with residential aged care and retirement villages.

A new Compliance Management Insight issued by the ACQSC by Peter Edwards, Deputy Director, Regulatory Operations has sought to reassure the sector about the new requirements, stating that the goal is "not to catch providers out" and promising to work with operators that do not meet the minimums.

As per the main image of this story, the minimum liquidity amounts for providers with deposited amounts (such as RADs) include the sum of:

• 35% of the provider’s cash expenses for the previous quarter
• 10% of the deposited amount balances held at the end of the previous quarter
• 10% of refundable retirement village payment amounts (if any) held at the end of the previous quarter
• 10% of refundable retirement village payment amounts (if any) held at the end of the previous quarter

Where there is no deposited amount, the minimum liquidity ratios include the sum of:

• 35% of the provider’s cash expenses for the previous quarter
• 10% of refundable independent living payment amounts (if any) held at the end of the previous quarter
• 10% of refundable retirement village payment amounts (if any) held at the end of the previous quarter

The Exposure Draft is only open for consultation until 7 March 2025. More information about the consultation is available here.

You can read the Consultation Draft of the Aged Care Financial and Prudential Standards 2025 here.