Retirement Villages: Read between the lines

“Supporting seniors to make more informed decisions is undoubtedly the way forward”.

In Australia, there are approximately 180,000 seniors calling a retirement village home (Retirement Living, 2013). Residents occupying the villages are on average older than a decade ago with 95 per cent of residents now over the age of 65 years (McCrindle, 2013). The growing questions however are, ‘do the occupants understand the financial implications of moving into a retirement village? and ‘what are the village owners obligations to disclose and inform these retirees to ensure the full extent of the terms and conditions of retirement living are properly understood?’

It’s fair to say over the years the sector has received it’s share of negative press; In particular, around their entry and exit fees that many seniors often fail to completely understand and comprehend, or whether the retirement village owners are not adequately explaining the agreements from the outset. Regardless, the consequence of  the failure to comprehend can have devastating financial and emotional effects on the retiree or their loved ones  once it is time to leave.

In simple terms, entering into any binding agreement does require the consent of both parties with the cognitive capacity to comprehend the agreement they are undertaking. Capacity does not equate to actual understanding  nor does it mean that they have taken advice or the necessary steps to protect themselves. An often unfortunate scenario for the elderly, but not an excuse.  We must acknowledge that both the retirement village owner and the senior seeking a unit each have their own role to play before signing on the dotted line. The village owner has the responsibility to make sure they provide a transparent agreement that clearly spells out the risks and contractual obligations to the senior. The senior however must make it their responsibility to understand all associated costs and if not should seek independent advice. Unfortunately, despite the sectors vulnerability of potential residents, age itself is not a defence once the contact is signed.

Many people often forget to make sure financially they can afford to live in their new abode well into their twilight years. The ongoing costs can be a significant burden for many, especially if longevity is on your side and your budget does not allow for longer than expected golden years, or  any rise in ongoing fees that are contractually permissible but perhaps not immediately front of mind at the time of signing up.

As the sector continues to grow to accommodate our ageing population, seniors are urged to avoid financial hardship by doing their research and shopping around before entering into any binding contracts with retirement village operators.  For example, Consumer Affairs Victoria advises Victorians considering a retirement village to:

• Visit as many as possible that fit their location and financial requirements
• Talk to residents about what they like and don’t like about living there
• Discuss options with friends and family.

I, personally, would go a step further and encourage seniors to seek independent advice from a competent lawyer, tax advisor, financial planner or other professional capable of assisting the retiree in taking adequate protections when entering a contract to participate in a retirement village on a fully informed basis. This can be done after, or in parallel to, utilising various online resources, reviews and ratings site, as well as the portals and forums independently.  Even if you can’t travel, you can do your own desktop research and learn as much as possible before committing to the costs of seeking professional advice that could save you many times the fees you may have to pay now, in the future by being prepared and informed. While advisor may offer some protection, ultimately the decisions are still yours and that is why doing your own research is crucial and should not be avoided or delegated.

In any industry, there are leaders and laggers in their governance and disclosure practises and through websites like Consumer Affairs, information is being centralised, simplified and made available to the people who need it, if they can find these knowledge centres. Be sure to check what resources are out there. Minister for Consumer Affairs, Jane Garrett, noted recently this crucial point for her Victorian constituents:

“Victorians can avoid unnecessary financial and emotional hardship by doing some research, and seeking independent financial and legal advice before buying into a retirement village.”

Further to this, last week Consumer Affairs Victoria launched a campaign to better support seniors considering retirement villages to make more informed decisions.

There has been a big push over the past 12 to 18 months to provide our ageing community with greater choice and increased transparency, as seen in the home and community care sector with the ‘Consumer Directed Care’ Packages set to commence 1st July 2105. The Consumer Affairs site and new information at www.consumer.vic.go.au is a welcome addition to better support our ageing population offering consumers a clearer outline of expected costs from start to finish, along with advice on whether or not retirement village living is for them. The new resource will hopefully provide additional guidance to prevent many of the issues that arise to often. Many of these unfortunately are from seniors entering into contracts that they do not completely understand as mentioned earlier and as seen in the Newspoll survey last year with a staggering two thirds interviewed, themselves unsure about what was involved in signing a retirement village contract and what costs they would be up for along the way.  Distressingly, Consumer Affairs reported that in 2013-2014 that they were contacted more than 690 times for advice on retirement villages, and received over 70 complaints.

Minister Jane Garrett further noted, “Not all retirement villages are the same. It’s important to compare what each can offer and clarify specific terms and conditions.” And that, “Victorian’s deserve a comfortable retirement and we’re doing all we can to ensure that.”

If there is a simple set of checks to take away from this, whilst each retirement village has their own fee structure, the main fees one would expect to pay include (but may not be limited to) the following:

1. Wait list: At some villages fees may start rolling in as soon as you put your name on a waiting list, with many operators charging a fee to list that may or may not be refunded upon entry.
2. Purchase Price: The cost of the retirement village unit. This could cost anywhere from $200,000 to $2 million or more depending on location and services available.
3. Ongoing fees, maintenance, management fees: These are generally paid directly to the village owner or operator and can range anywhere from $280 to $1000 p/month. The other often misread or omitted fine print that has come under attack is that seniors (or their relatives) maybe being forced to pay ongoing fees for months (if not years) after their death (fairly or not) or if they decide to move out until the unit is sold. Whilst each state is different and some are regulated these ongoing fees could potentially increase unexpectedly and may cause an issue for those left behind, let alone the retiree themselves if not budgeted for and understood in the planning for retirement stage upfront.
4. Exit/Deferred Management Fees: A person purchasing a retirement unit could expect to pay a deferred fee whereby when it comes time to sell you have to pay the village owner a large percentage of the sale price. This could range anywhere from 25-30 per cent of the sale price, which is equivalent to 3 per cent a year for a maximum of 10 years.
5. Capital Gains Tax: Last but not least, if there has been any capital gained on the asset, the amount you get to keep will be dependent on your contract and structuring – good tax advice from qualified tax advisors is essential. This may mean your ingoing contribution could be non-refundable. Be prepared that some retirement village owners assign 100 per cent of any capital gain in addition to paying the departure fee, in these cases leaving the resident with less money than when they entered the village. (Consumer Affairs, 2015), (Choice, 2014).

In summary, supporting seniors to make more informed decisions is undoubtedly the way forward. So make sure you read between the lines and take the time to review and understand ALL the fine print as you plan your entry, or that of a loved one, into retirement village living. Happiness in retirement is best ensured by being prepared. !

Disclaimer: This article is not provided as financial or tax advice. Readers reviewing tax or financial matters or any legal contracts relating to their circumstances should seek independent, personal advice for their own particular requirements before making decisions.