How to take the fear out of retirement village costs and get the best deal
- WYZA Life
The retirement village lifestyle offers great appeal for a growing number of Australians, with security, community and easy living being high on the list of attractions. For many, however, the complexity and uncertainty surrounding the financial aspects can be a real stumbling block – sometimes for good reason. Fortunately, that may all be about to change.
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A popular lifestyle choice
More and more retirees are making the switch to a retirement village with upwards of 2,200 villages across the country. The 184,000 people currently living in them represents 5.7% of the over 65 population (up from 5.3% five years ago).
That proportion increases to 8% for those 75+ and with Australia destined to have one in four over age 65 by 2056 it seems that this will become an increasingly popular living choice.
Did you know Australia is ranked as the third best country to retire in globally? Talk about the lucky country!
The lure of retirement living
A recent survey of over 5,000 village residents by McCrindle social researchers reports that the vast majority believe the reality of village life is just as good as or better than they expected. In fact, 98% of rate their experience between “somewhat to extremely satisfied”.
So what is it that makes retirement villages so appealing? The prime motivators for making the switch are varied. For some it is a case of just wanting to downsize and simplify life, rather than having the worry and work of looking after their own home. Or security and health concerns may have led them to seek a living space that is easy-care and has access to an onsite emergency assistance.
While others are attracted by the lifestyle benefits, such as community centres and recreational facilities, and the opportunity for social interaction and mutual support from like-minded people.
Some villages are also looking at how they can provide greater health and in-home services, which will allow residents greater scope to ‘age in place’, rather than having to move from a village to higher care facilities.
The call for simpler contracts
For all the benefits and advantages of retirement village living, a major sticking point for those considering such a move is the uncertainty surrounding the financial aspects.
Many feel that the contracts are complex and it is difficult to know where they actually stand with fees, costs and the ability to opt out if they want to do so in the future. This lack of transparency can be a turn-off and it has to be said that in some cases these concerns are well founded.
The McCrindle research supports overall impression that new residents are not achieving a clear understanding of their contracts and that this may lead to increased conflict and a greater need for regulation.
Residents were looking for clearer, more honest financial accountability from village managers and felt that their contracts should be simplified to avoid miscommunication This view is supported by Retirement Village Residents Association secretary Dorothy Swanton, who said complex contracts and the difficulty selling when the retiree moved on were the major concerns of the association’s 6000 members.
"Our concern is that the operators are using contracts to their advantage, and residents do feel as if they are being overcharged in a lot of circumstances”.
Swanton went on to say that some villages require refurbishment prior to sale and also require residents to maintain fees until the sale is made. “If a unit does not sell quickly, this can end up being a traumatic experience”, she warns.
Forging a new way
While increased regulation may emerge as one way of tipping the balance back toward residents, the bureaucracy involved in formulating practical guidelines that actually work can sometimes be slow and ‘hit and miss’ affair.
While such regulation may eventually play an important role, there is a significant opportunity for more progressive village operators to take the initiative and create new ways of improving the clarity and fairness of contracts.
A case in point is the Aveo Group. As one of the country’s largest operators, they have taken the ‘bull by the horns’ and designed a more user-friendly arrangement that has ambitions of being the model of the future.
It has been dubbed ‘The Aveo Way’ and appears to be a real step forward in making the contract process more transparent. The core of the new model is a belief in the potential for an arrangement that gives mutual benefit to the resident and the village operators alike.
To this end, The Aveo Way gives a clearer and simpler disclosure of all costs, rights and responsibilities at the outset of the agreement, rather than imposing vague and complex calculations well after the agreement is signed.
Greater clarity and fairness on entry and on exit
Alison Quinn, Executive General Manager of Retirement for Aveo Group, is excited by the innovation they are introducing. “By taking the lead in changing the way the retirement village industry operates, we believe this will be beneficial for the entire industry and could have a fundamental impact on future legislative reviews", she said.
The principle of the new model which is forging a fantastic new standard in Australia is to address residents’ key concerns at every stage of the process. At the outset, prospective residents are given some built-in safeguards, including:
- a 21 day cooling off period that allows cancellation without any penalty costs
- a settling-in assurance period - if a member decides to leave after the first 90 days, Aveo will sell the unit on the member's behalf and will only charge legal fees and monthly village fees, without any penalty.
To provide even greater peace of mind in the early stages, the agreement offers a radical change in the structure of the Deferred Management Fee. This fee is the amount a village operator usually charges a resident when they exit the village.
Changes to agreements via The Aveo way means a decrease in financial risk to residents
The Aveo way clearly sets out the amount of fee from day one and specifies that only 7% of the fee is charged if the member wants to leave within the first year. Compared to a typical village contract, this drastically reduces the financial risk to the resident if they are not happy with the move.
The simplicity of the contract design means that prospective residents can be given a very clear picture of what they can expect down the track and a lot more certainty when they eventually come to sell their unit too.
The Aveo Way removes any liability for sales commission, marketing costs or refurbishment costs. Even if the market is down and the unit does not sell, the village guarantees pay out of the residents’ entitlement at twelve months (or six months in New South Wales and Tasmania).
These assurances are made possible because Aveo retains any capital gain made when a unit sells, but they also absorb any capital loss on the property, so that the resident is not left exposed to a slow or depressed market.
Flexibility with unexpected health changes
Another common issue that residents encounter with traditional contracts occurs when health and mobility concerns force them to seek a higher level of care.
Rather than having to wind up their current contract and start a new one for the new accommodation, The Aveo Way will credit the percentage of Deferred Management Fee already accrued if the resident moves to higher care accommodation within the Aveo portfolio.
Such improvements are a welcome bonus and will make the decision much easier for the growing number of people who want to take advantage of the retirement village lifestyle.
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