What is wrong with Victorian Retirement Villages

The critical importance of retirement village resident submissions to Victorian state government inquiries is that they are actually living the experience not simply 'working in the field'. They know what is wrong because they have experienced it, suffered from it.

Victorian retirement village residents find that there is almost zero protection when something goes wrong, or the system to obtain that protection is so cumbersome, so demanding on them, that surrender is ultimately the chosen option. And village operators know that and use it to their own financial advantage.

All this from a Victorian Labor government that fails to enforce the law as it is currently written, let alone to improve it to protect the very people it was originally written to protect.

"The law was clearly on the side of the village residents. It was a lack of access to affordable, quick, decisive enforcement of the law that failed them most". - Retvilldotnet

Retirement villages, the process of for-profit operators seeking financial reward from this commercial activity under the guise of the provision of benevolent housing for older Victorians. Sadly and particularly in Victoria the commercial risks to operators are dampened by statute whilst at the same time the commercial rewards are enhanced by statute. 

For Victorian retirees who make that fateful decision to enter a retirement village it is the complete opposite. The payment of the capital value of the village unit, not for ownership simply occupancy. The payment of all the costs of property ownership with none of the rewards.

"Families need to be aware that what we are talking about here is the transfer of intergenerational wealth, not to families but into the pockets of corporations. Shame about the elderly not having enough money for aged care."

So what is wrong with Victorian Retirement villages, the answer is -

1. Bureaucrats who don't really know or fully understand the product they are producing legislation for.
2. Legislators who don't really know or fully understand the product they are enacting legislation for.
3. State Governments who are far too easily seduced by slick marketing from the industry.
4. A failure of all of the three parties above to listen to the one group of people who really do know and fully understand the product, the village residents and their families. 

Village residents understand because they suffer financially from the legislative inequities produced by Bureaucrats, Legislators, State Governments.

Pensioner Poverty in a Retirement Village

Pensioner Poverty in a Retirement Village – The business models sanctioned and encouraged by Australian governments contribute to what is referred to in the industry as a poverty or financial trap.

Australia already ranks poorly in relation to pensioner poverty and sadly the business models used by the retirement village industry make a contribution toward these damning statistics.

[caption id="attachment_2420" align="aligncenter" width="957"] Pensioner Poverty[/caption]

The deferred management fee structure inherent in most models,, inflation, rising property prices, rising nursing home entry costs, village maintenance costs, village administration costs, village exit costs will over time reduce the capital value of the refundable amount due to a resident on exit from a retirement village.

This impact of the deferred fee, loss of earnings, inflation etc. on the amount to be refunded  is something many pensioners / retirees will have to deal with.  A change in circumstances without further financial resources often leaves a person in a financial position they did not envisage on entry.

Additional capital resources may be needed to meet the cost of any change in circumstances – ie: choose or need to leave the retirement village, re-enter the property market, meet the cost of a nursing home bond to enable entry into a nursing home of choice.

Many retirement village residents enter a financial trap they did not see on entry as a result of the ever decreasing value of the amount to be refunded on exit from the village.

The following table shows four different retirement village business models and the reduction in capital value suffered by pensioners / retirees once they entered a retirement village. The complexity of the business models and contracts of occupancy hide this path to 'poverty' for many older Australians.

Green - Deferred Management Fee calculated on the entry value - 100% of any capital gain to the resident
(45% of the market)                                                                                                                                                                                      
Blue - Deferred Management Fee calculated on the exit value - 100% of any capital gain to the resident.
(14% of the market) 
Pink - Deferred Management Fee calculated on the entry value - 0% of any capital gain to the resident.
(20% of the market)
Orange - Deferred Management Fee calculated on the exit value - 0% of any capital gain to the resident.
(21% of the market)



Pensioner Poverty in a Retirement Village.

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Property Rental or Retirement Village

Property Rental or Retirement Village - Australian retirees can suffer a dramatic reduction in their capital base depending on whether they choose to rent a property and retain the capital amount from the sale of the family home or purchase a lease for accommodation within a retirement village.

In this example a retiree has access to $850,00.00 in capital and can face the following options.

1. Purchase a lease/licence enabling the retiree to occupy a unit in a Retirement Village. The Deferred Management Fee is 35% of the entry cost of $850,000.00 plus annual maintenance fees and a unit refurbishment cost on departure. The retiree obtains 0% of any capital gain in the value of the unit.


2. Purchase a lease/licence enabling the retiree to occupy a unit in a Retirement Village. The Deferred Management Fee is 35% of the entry cost of $850,000.00 plus annual maintenance fees and a unit refurbishment cost on departure. The retiree obtains 100% of any capital gain in the value of the unit.


3. The retiree could rent a communsurate property within the general community and pay a weekly rental amount.


4.  Stay in the family home.

The graph and the tables below illustrate the dramatic reduction in capital wealth of the retiree over just a 7 year occupancy period within a retirement village.  Financial outcomes can depend on the contractural provisions offered by the village operator.  Renting a property within the general community can have a much less dramatic impact on capital wealth but as in all financial decisions there are multiple issues to consider.

Scenarios are illustrated using standard retirement industry parameters:-

Option 1.

• Deferred Management Fee of 35% on the in-going value of village unit.


• 0% of the capital gain to the village resident.


• Maintenance fees


• Unit refurbishment cost.

Results Option 1 -

Village Resident   Start - $850,000.00  Finish - $228,087.00

A capital reduction of minus $621,913.00

 

Option 2.

• Deferred Management fee of 35% on the out-going value of village unit.


• 100% of any capital gain to the village resident.


• Maintenance fees.


• Unit refurbishment cost.

Results Option 2 -

Village Resident   Start - $850,000.00  Finish - $493,373.00

A capital reduction of minus $356,627.00

Note:- This improved result over Option 1 is totally dependent on the size of any capital gain. Should there be 50% less capital gain ($204,066.00) the result would be a capital reduction of minus $560,693.00.

 

Option 3 -

• Rental property value $850,000.00


• Rental return to Landlord initially 5% then a 5% annual increase in rent


• Retiree retains $850,000.00, the proceeds from the sale of the family home


• Retiree invests the retained capital, calculation uses 4% return on investment compounded

Results Option 3 -

Renter   Start - $850,000.00  Finish - $772,506.00

A capital reduction of minus $ 77,494.00

 

Graph 1

Table - Option 1

Table - Option 2

Table - Option 3

 



 

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Deferred Management Fee Hurts Retirees

Deferred Management Fee Hurts Retirees - The major problem with the DMF model is that it was created decades ago for charities and not-for-profit organisations.

Today in the modern business world the ingoing $ amount required to enter a retirement village is typically commensurate with similar properties within the general community. The result is that 2017 retirees are now in general terms paying entry and operating costs as if an owner, but without the security of ownership and without any of the ownership benefits.

Table 5a and 5b clearly show the detriment to retirees and the benefit to retirement village operators as the ingoing amount for retirement villages moves closer to 100% of a commensurate property within the general community. The use of the Deferred Management Fee model in these circumstances simply accelerates the transfer of capital wealth from retirees to private enterprise.

As retirement village entry costs get closer to commensurate properties generally,

the greater the Deferred Management Fee model fails Australian retirees.

Table 5a

Table 5b

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Deferred Management Fee

The Retirement Village Deferred Management Fee model creates an accelerated transfer of wealth from retirees to village owner/developers.

Table 1a below inclusive of inflationary adjustments shows the capital wealth for one unit transferred from a retiree to a village owner / developer over a 10 year period.

The table uses common contractural parameters within the industry although there can be variations.

Table 1a

 

[caption id="attachment_296" align="alignright" width="300"] retirement village poverty trap[/caption]

The major problem with the DMF model is that it was created decades ago to enable charity and not-for-profit organisations to provide retirement accommodation to retirees with limited financial resources, where they had little income but some capital.

Today in these private enterprise times the ingoing amount required to enter a retirement village is typically closer to or even at the price of a similar property within the general community. The Deferred Management Fee model is a way of hiding the high cost until the lessee leaves to go into assisted care.

All of this transfer of capital wealth to predominantly private investors comes at the direct cost of the life savings of Australian retirees. This has the capacity to place them at financial risk should the need arise for a change of direction in their life, eg: return to the property market or enter an aged care facility. 

 

 

 

 

 

Table 1b below shows accelerated returns to retirement village investors from the deferred management fee model in the order of 2 to 2.5 times that of an investor for a traditional residential investment unit.

These accelerated returns for a retirement village investor are driven by:-

1. 
   

   The property fully maintained and refurbished at the cost of the retiree

   
   


2. 
   

   Capital gain from the increase in value of the village property – can be subject to contract provisions

   
   


3. 
   

   Use of the retiree's refundable amount - 0% capital provided by the occupant – refundable only on the departure of the occupant

   
   


4. 
   

   Multiple deferred management fees over multiple occupancies – the shorter the deferred management fee payment period the greater the opportunity to charge a new maximum fee

   
   


5. 
   

   Deferred management fee charged on sale price - subject to contract provisions

   
   

Table 1b

If there is no discount to the entry cost there is no justification for a Deferred Management Fee.

If there is a Deferred Management Fee then it should reflect only the applicable discount.

Retiree Loss of Capital Wealth

Capital wealth transfer comes from the Deferred Management Fee model used in the Retirement Village industry and is financially damaging to Australian retirees. The Deferred Management Fee model creates an accelerated transfer of wealth from retirees to village owner/developers. Table 1 below, inclusive of inflationary adjustments, shows the capital wealth transferred from a retiree to a village owner / developer over a 7 year period, this is for just one unit in just one retirement village.

The table uses common contractural parameters within the industry although there can be variations.

The capital value reduction to the retiree is at the rate of -$1,668.21 per week of occupancy.

The capital value gain to the owner / developer is at the rate of +$3133.78 per week.

The major problem with the DMF model is that it was created decades ago for not-for-profit organisations to enable retirees with limited financial resources to obtain affordable retirement accommodation, accommodation at a price much lower than a commensurate cost within the general community.

Today in these private enterprise times the in-going amount required to enter a retirement village is often commensurate with a similar property within the general community. This in-going amount being above development costs and higher than can be justified to warrant the use of the historic Deferred Management Fee model.

Governments Push Financial Doom

Governments Push Financial Doom - Federal & State Governments are actively directing many retirees toward financial doom despite being advised of the negative financial impact on retirees of their statutory & regulatory actions in the retirement village sector.

The poor response of the Victorian Government to their own retirement living enquiry has received criticism including an observation that "Sadly the Victorian government has been seduced by the industry notion that better consumer protections are at the cost of retirement village innovation and growth."


The above was part of a summary statement on Page 28 of the LSIC report from the committee in March 2007 despite hundreds upon hundreds of retirement village residents together with consumer advocate organisations, providing evidence to the contrary in their submissions to the enquiry.

In June 2007 the ABC 4 Corners program 'Bleed Them Dry Until They Die' aired showing statements such as above to be a representation of the failure of legislators and regulators to fully understand what was and still is happening to older Australians in the retirement village sector.

Problems with the retirement village industry can be summarised into some key areas:-

1. Low operational standards of some operators.


2. Outdated legislative frameworks.


3. A failure of regulatory bodies to police and enforce breaches of law.


4. A failure to provide easy access to the law and justice for retirement village residents.


5. The continued use of the retirement village 'Deferred Management Fee' business model designed for charity organisations of decades past.

Federal & State Governments through statutory and regulatory frameworks are encouraging retirees to step into the financial mire of retirement villages. Legislators don't understand or won't acknowledge the negative financial implications for retirees of the deferred management fee model used in this industry sector. A business model designed for charity organisations of decades past not the modern, slick, profit driven, private enterprise organisations of today.

The following example shows the potential financial impact on a home owner should the home owner decide to sell the family home and downsize into a retirement village. The example uses common contractural parameters found within the industry although there can be variations.

The example shows a difference in outcomes over just 7 years of nearly $750,000.00.

The positive social outcomes of living in a retirement village are acknowledged but at what financial cost to retirees. The outcomes are financially debilitating for many retirees and yet an outcome as described above is actively encouraged and even promoted by Federal & State Governments.

It is important to note that the financial damage done in the example above is not done by bad contracts, by bad operators, by poor legislation, by slow acting regulators. The financial damage done is from just one primary thing the deferred management fee business model.

Legislators and regulators can tinker with contracts, fact sheets, dislosure statements, access to the law and while all these areas are important nothing will stop the financial damage done to retirees unless the deferred management fee business model itself is outlawed or heavily reformed.

In this new century is there really room for a consumer product that even lawyers and financial advisors cannot fully explain to their clients.Should not the retirement village industry be based simply on you either buy it or you rent it, they are two concepts everybody understands even legislators and regulators.

Governments Push Financial Doom

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Retirement Industry 8 Point Plan

Retirement Living announced that there has been a meeting between retirement village operators and village resident association leaders, the industry has announced an eight point plan that in their words is "designed to lead to greater transparency and higher standards across the industry"

The 8 point plan can be summarised as:-

• Nationally consistent retirement village legislation and contracts


• Transparent and easy to understand descriptions re the various cost components of living in a retirement village


• Encouragement for all prospective residents to seek independent legal advice


• Improve training and professional support for village managers and sales staff.


• Commit to improve industry accreditation standards and industry coverage and support madatory accreditation.


• Work with Village Residents Associations to implement an industry Code of Conduct.


• Commit to the establishment of an industry Ombudsman or Advocate for disputes that cannot be settled at village level.


• Maintain and strengthen the relationship between industry and the Australian Retirement Village Residents Associations.

Although improvements for retirement village residents is welcome and long overdue the above steps will not change the financial damage done to retirees by the Deferred Management Fee business model.

The table below shows the transfer of capital from a retirement village resident to a develop/operator over a period of 10 years. Not one of the steps in the above 8 point plan will stop this from happening. The missing link in all this discussion about reform in the industry is the absolute necessity to reform or discard the deferred management fee business model.



 

Retirement Accommodation but at what cost?

Retirement Accommodation – Would you pay the $ amounts being asked by the industry not for ownership but simply conditional occupancy of residential accommodation in a Retirement Village?

Don't answer now - answer at the end.

What is the cost of moving into this Retirement Village? The in-going amount in his village is $850,000.00. Commensurate with those in the freehold development next door where you would obtain ownership but here you get a lifestyle in addition to the conditional right to occupy. I don’t actually get ownership for $850,000.00, all I get is a conditional right to occupy? Correct.

Is there a Deferred Management Fee and what is the amount? Yes, the Deferred Management Fee payable to this operator is 35% or $297,500.00 of that in-going price of $850,000.00. I don’t get all my money back when I leave the property even though I don't have ownership only a conditional right to occupy? Correct.

Why do I lose 35% of my in-going amount if I don't have ownership? That 35% or $297,500.00 amount helps pay for the $2.5m communal recreational facilities and helps the operator make a profit so they can continue to provide this type of accommodation which is well liked by both State and Federal Governments. You want me to believe that the developer has made no profit over development costs at the $850,000.00 per unit price point.  You have over 100 units here so that $297,500.00 taken per unit totals $29.7m for a once only communal and recreation facility cost of $2.5M. Retirement village units turnover around every 7 years or so, you will get at least $29.7m now at the start of the village and then again around every 7 years over the entire life of the village for a once only communal and recreation facility cost of $2.5M. Correct.

When do I get the 65% or $552,500.00 of that total in-going payment refunded? On your departure from the village after say 5, 10, 15 years of occupancy.  But inflation will have decimated the present day value of my money by that time, I will struggle to have enough capital value to return to the property market or afford a nursing home placement. This has the capacity to put me into what many describe as the retirement village financial or poverty trap where the present day value of that 65% of the in-going amount refundable to me on departure is decimated in by inflation, rising housing costs and rising nursing home entry costs. Correct.

What happens to my 65% or $552,500.00 of that in-going payment while I reside in the village? The operator can use that 65% or $552,500.00 of that in-going payment interest free for their working capital needs or to repay their commercial borrowings or simply to invest for a profit until repayment to you on your exit. You have over 100 units here, that would generate an interest free cash pool of over $55.0m million dollars increasing over time as each unit increases in price. Correct.

I paid an in-going amount commensurate with a purchase price do I get any capital gain? No, under this particular occupancy contract 100% of the capital gain goes to the operator.

Are there any other costs associated with this conditional occupancy agreement? Yes, you pay all the maintenance costs of the unit. Yes, you pay any selling costs of the unit on your departure. Yes, you pay an administration fee on your departure. Yes, you pay the full refurbishment cost of the unit on your departure, around $60,000.00 at present day values. Yes, you and your fellow residents pay all the maintenance costs associated with the common areas and the recreational facilities. But I don't get ownership of the property only conditional occupancy! Correct.

What do you think now, would you pay the $ amounts being asked by the industry not for ownership of a unit but simply the conditional right to occupy a unit in a Retirement Village?

 

Downsizing Policy Hurts Older Australians

The federal government is introducing incentives for older Australians downsizing from their family home into accommodation such as retirement villages.

The table below indicates what a financial disaster downsizing to a retirement village could be as retirement village deferred management fees, maintenance fees, selling fees and unit refurbishment costs have a negative impact on the original capital base of these retirees.

This could lead these retirees into what is called the retirement village poverty trap for longer term residents of the village.

This so named retirement village poverty or financial trap is where the $ value of the refundable amount payable on departure is so diminished over time by inflation that it places you at a point where you can no longer afford to leave the village and re-enter the property market or have sufficient money to enter a nursing home of choice as a result of an Aged Care Assessment.  

The higher the percentage of total life savings used to pay the entry cost of the village –

1. the higher the likelihood of being in the so named ‘poverty trap’ on departure.

2. the higher the likelihood of requiring family assistance due to a lack of capital.

3. the higher the likelihood of being dependent on a government funded nursing home placement rather than a placement of choice.

For more reading on the retirement village poverty/financial trap go to - http://www.retvill.net/poverty-trap/

Retirement Options

Retirement options for older Australians can be varied and sometimes complex. The table below shows a comparison between two popular options among retirees, a retirement village unit or for example a unit on the Gold Coast. The point made in the table is the dramatic negative impact a retirement village will have on the life savings of the retiree over time as compared to say a Gold Coast unit or unit ownership anywhere. In Option B the retiree continues to move forward in terms of a capital base whereas in Option A the retiree suffers an ever decreasing capital base.

Of course in the end a retiree is free to choose an option that suits their personal circumstances best.

Retirement Villages - No Financial U-turn

For many older Australians retirement villages can be a financial disaster by creating a no U-turn situation. The ability to leave a retirement village by choice or a change in circumstance weakens as each year passes due to deferred fees, exit costs, inflation, rising property prices and rising nursing home entry costs.

This can result in a retirement village resident entering a financial trap not forseen or explained at entry by the ever reducing $ value of their original capital base.

The higher the percentage of their total capital base used to pay the entry cost into a retirement village the more certain it will be that they will find themselves financially trapped should a change of circumstance be desired or required.

The following table illustrates what can and is experienced by many of the nations older citizens living in retirement villages.

Ken Wyatt promises action on regulating retirement villages

ABC News reports:-

"Federal Aged Care Minister Ken Wyatt has said he was "disappointed" to see the "exploitation" of some residents of retirement villages on last night's Four Corners.

Key points:

• 2007 parliamentary committee recommendations to improve residents' protection never implemented


• Mr Wyatt says no need to wait another 10 years for action, he will revisit report


• Retirement villages "would be more effectively regulated by ASIC", COTA head says

The program highlighted how some retirees have been stung by complicated contracts, oppressive rules and crippling fees.

"I sat there and watched the program and thought: 'How do you justify? How do you justify a $10 fee to provide a key to someone who has locked their key inside?' Because we've all done it," Mr Wyatt said.

"And it irritated me actually, to be quite truthful."

Problems with the retirement village sector were revealed as far back as 2007, when a Federal Parliamentary Committee made several recommendations to improve protection for residents.

Those recommendations were never implemented.

Age Discrimination Commissioner Kay Patterson called on state, territory and federal ministers to work together to implement them now.

"I think there are things that can be done fairly immediately," she said.

"Given that the parliamentary committee was 10 years ago, something needs to be done."

Mr Wyatt said people would not need to wait 10 years for him to take action.

"I now want to revisit that report, look at what the detail was and then look at what options I can take forward, and certainly have discussions with colleagues — because I'm very keen and have always been committed to looking after an ageing population," he said.

The 2007 report recommended:

• Federal, state and territory consumer protection ministers look at whether a statutory supervisor would be appropriate;


• Federal, state and territory attorneys-general look at how they could harmonise legislation; and


• That the ACCC and state and territory fair trading offices form a working party to examine the nature of retirement village contracts, including reviewing all aspects of exit fees and other fees including whether they should be abolished.

However, the Council on the Ageing (COTA) said the 2007 report would not solve the problems, because the sector was changing as a result of federal legislative changes in 2012 and this year."

Calls for federal inquiry into retirement villages

The Sydney Morning Herald reports:-

Labor, the Greens and former Australian Competition and Consumer Commission chairman Allan Fels have called on the government to urgently review the retirement village sector following allegations elderly Australians are being ripped off.

In a series of stories, Fairfax Media and ABC's Four Corners uncovered questionable practices by one of the biggest listed operators, Aveo, while it was raking in huge profits.

Opposition Leader Bill Shorten blasted the exploitation of vulnerable people in aged care and flagged a willingness for bipartisan reform following the revelations.

Mr Shorten said on Tuesday he was willing to work with Prime Minister Malcolm Turnbull on solving the sector's problems and warned that "large companies who treat vulnerable older Australians in the manner in which we saw last night are not part of the solution".

"A nation that treats its old people in the manner in which we saw on television last night should be ashamed of itself," Mr Shorten said.

Go to the SMH web site for full details.

Retirement village regulation lacking, residents open to exploitation

ABC News reports:-

"Residents in the nation's retirement villages are being left vulnerable to exploitation by a hotchpotch of legislation, regulation and underfunded consumer affairs bodies.

Key points:

• Retirement village residents are not in any federal minister's portfolio


• Several people say they've had trouble selling property


• Concerns raised over dense contracts, high fees and lack of resources to instigate change

A joint investigation by the ABC's Four Corners and Fairfax Media into retirement village company Aveo has found that residents are slipping through the regulatory cracks.

They are not in any federal minister's portfolio and a series of recommendations and reforms that came out of an inquiry into the sector a decade ago were never implemented.

Tim Allerton, a hardnosed crisis management professional and PR expert, believes his aunt was taken for a ride by Aveo after she was forced to move out of a unit in Aveo's Lindfield Gardens village in Sydney after she got sick.

Mr Allerton's aunt Joan Buswell bought the property in 2008 for $250,000.

It was only when she died that Mr Allerton realised the contract she had signed and how difficult it would be to sell the property.

"The original lease contract was 172 pages, and it contained very dense definitions, charges and so forth, and perhaps at our fault, we didn't investigate it as heavily as we should have," Mr Allerton said.

"But we were looking for accommodation for her at the time, and that was our main priority."

The joint ABC investigation spoke to numerous current and former residents, their children, lawyers, former Aveo staff and lobby groups, and found some questionable business practices.

The bodies that are supposed to protect the residents, NSW Fair Trading and Consumer Affairs Victoria, do not have enough powers.

Mr Allerton said he put the unit on the market after his aunt became sick, appointing Aveo as the real estate agent.

Then after his aunt died in early 2013 it became more urgent to sell the unit and wrap up the estate, particularly given the family were being charged monthly maintenance fees.

"The maintenance fees, despite the fact she'd passed away at that time, were around $10,000 to $13,000 for each year, so it was just eating a hole in our pockets," Mr Allerton said.

'They weren't even showing the apartment'

Finally, the family dropped the sale price from $270,000 to $199,000, but still it did not sell.

So the family decided to investigate.

"What we did discover in a range of visits that we undertook was that the agents weren't even showing people the apartment," he said.

"There was dust on the floor and on the fixtures and fittings, as well as a very musty smell in the apartment."

The unit finally sold two-and-a-half years after being put on the market at a 20 per cent discount to the purchase price of $250,000.

After exit fees and other fees, including agency fees, Aveo cut a cheque for $94,000.

Aveo: Exploitation of the elderly rife in retirement villages

ABC News states their 4 Corners program reports:-

"Residents of the multi-billion-dollar retirement village industry have described buying into a retirement village as a "financial sinkhole".

A joint investigation by the ABC's Four Corners and Fairfax Media into retirement village company Aveo has uncovered exorbitant fees and complex contracts.

One former resident describes Aveo's business practices as "totally rapacious, I don't know how they get away with it".

Fairfax Media and Four Corners spoke to current and former residents, their children, lawyers, former Aveo staff and lobby groups and found several alarming business practices at Aveo — including safety issues, misleading marketing and advertising and property sales.

The joint investigation obtained numerous Aveo contracts, which included clauses some lawyers described as complex and draconian.

Chief executive of the Consumer Action Law Centre Gerard Brody described some of Aveo's contracts as among the worst he had seen.

"Not only are they over 120 pages in length, they're dense, they're hard to understand, they're legalistic," Mr. Brody said.

Current and former residents also described the company's model — which takes an exit fee as high as 40 per cent of the original purchase price, leaving outgoing residents often forking out in excess of $100,000 — as "financial abuse of the elderly".

Aveo has 13,000 residents across Australia and is expanding at a rapid rate. It expects to increase its resident numbers to 20,000 in coming years.

Those residents live in just over 11,000 units in 89 villages.

The company is rolling out two new contracts, the Aveo Way — which has exit fees of 35 per cent after three years — and Freedom Aged Care — which charge exit fees of 40 per cent after two years.

An exit fee is unique to the retirement industry. It is calculated as a percentage of the purchase price charged by retirement village operators when a resident sells the property.

Company documents and presentations state a targeted turnover of 10 to 12 per cent of residents each year — or 1,200 units a year.

Other large operators have a lower turnover of residents."

ABC Four Corners Critical of Aveo Group

In an ABC Four Corners program to be aired on Monday June 26 2017 the program lifts the lid on the retirement village industry and the Aveo group with the web site promoting the program stating "Residents of the multi-billion-dollar retirement village industry have described buying into a retirement village as a financial sinkhole."

The Four Corners program is titled Bleeding Them Dry Until They Die.

Take this link for details -  http://www.abc.net.au/news/2017-06-24/elderly-exploited-in-aveo-retirement-villages/8645876

The ABC web site advises "A joint investigation by the ABC's Four Corners and Fairfax Media into retirement village company Aveo has uncovered exorbitant fees and complex contracts."

You can watch 'Bleeding Them Dry Until They Die' on Four Corners at 8:30pm on ABC TV on Monday night June 26 2017.

Deferred Fee Myth

Retirement village operators will defend the deferred fee structure on the basis that every resident should make a contribution toward the village communal hall and recreational facilities. What they fail to detail however is that they get a contribution (deferred fee) from every new resident over the entire life of the village.

The table below shows in a 100 unit village the operator will turn over each unit every 7 years based on the industry average occupancy period.  With an entry price averaging say $500,000.00, a deferred fee rate of 30% and a deferred fee period of 3 years, the operator has the capacity to generate a deferred management fee sum of up to $15.0 million dollars in the first 7 years of the life of the village.

As the value of the units sold increases so does the amount received by way of deferred fees. In the example below with capital growth of just 20% over the 7 year cycle in the years 1 to 7 total deferred fees received were $15.0 million dollars. In the years 8 to 14 $18.0M, in years 15 to 21 $21.6M and in years 22 to 28 $25.92M giving a total for the 4 x 7 year cycles a whopping eighty million five hundred and twenty thousand dollars ($80.520,000.00). It is difficult to argue that the operator was not compensated for the cost of the village communal hall and recreational facilities by year 7 let alone year 28.

Over 65? $300,000.00 Boost to Superannuation Incentive

Under new rules announced by the Australian Federal Government in last week’s budget people aged 65 and older will now be able to make a non-concessional (post-tax) contribution of up to $300,000 – and $600,000 for couples – from the sale of the family home. Take this link to download the fact sheet - Reducing Pressure on Housing Affordability Fact Sheet

From July 2018, people who have owned their home for 10 years or longer will be able to claim the incentive which is exempt from the current $1.6 million transfer balance cap on super contributions. The contributions are also exempt from the work test which only allows those over 65 but under 75 working part-time to make voluntary super contributions and the age test which prevents people over 75 from contributing to their super.

You’ll also be able to make the contributions even if you’re still working part- or full-time, regardless of how much you have in your account already.

The Property Council advises that retirees who downsize to retirement villages will save the Government more than $2 billion each year from fewer GP and hospital visits and delayed entry into aged care compared to the $30 million the incentives will cost the bottom line in the Budget.

Given the retirement village poverty trap some village residents will face on eventual departure has the government factored in the cost of increased government funded aged care placements rather than self fund placements.

Is it a long term saving for the Australian Federal Government or will it become simply a transfer of capital from older Australians to the retirement village industry.  Will it generate a class of capital poor older Australians who will have to return to the government cap in hand to fund their aged care placement.



 

Devaluation of Retirement Village Resident Capital

Devaluation - the impact of the deferred management fee, inflation, rising property prices and rising nursing home entry costs on the amount paid to enter a retirement village can be devastating for some retirement village residents.

For many this has the capacity to lead to what is referred as the retirement village poverty trap or the retirement village financial trap. This is a situation where the amount left for repayment on departure from the village is devalued over time to the point where a retirement village resident cannot afford to move back into the property market or pay the entry cost to a nursing home of choice.

The resident must rely on family or government support to move to the next phase of their life.

Take this link for further details on the Retirement Village Poverty Trap .