The Technical Stuff..
Type of Contract
Retirement village contracts are not the same as ordinary residential property contracts. A retirement village contract spells out your rights and responsibilities as a retirement village resident.
You may be asked to sign several agreements to enter a village. For example:
- a contract of sale between you and the retirement village owner
- a management contract between you and the retirement village manager
The main types of contract arrangements are:
- Strata title, where you pay an agreed amount to a former resident or the operator, and then own the unit. You usually also need to enter into a service agreement with the operator.
- Loan and licence may be offered by nonprofit organisations such as churches. You usually pay a contribution in the form of an interest-free loan.
- Leasehold, where the lease is usually registered on the title deed, which protects you if the village is sold. You pay a lump sum for the leasehold.
Entry, ongoing and exit fees can apply to all three contract types.
There are large variations in entry fees for retirement villages, depending on factors including location, facilities, the age and condition of the unit, and other fees to be paid. On average, a two-bedroom unit in a retirement village costs about 90% of the median house price in the area in which it's located (the median house price is based on all types of properties and not restricted to two-bedroom units). Two-bedroom units that are less than 10 years old cost on average just above the median house price, whereas older-style units (more than 30 years old) can be available for half the median house price.
Ongoing costs cover any services provided, maintenance and a management fee for the village owner. According to Jones Lang LaSalle, average monthly fees for a retirement village are about $350 per month for independent living units, but can range from $280 per month up to $1,000 per month for resort-style villages in very affluent areas. The main problem, however, is that ongoing fees can increase more than expected. Other ongoing costs include services such as your telephone, gas and electricity. Check the terms of the contract on what happens if you move out of your unit or die, as you or your estate may be responsible for ongoing fees for months (if not years) afterwards, depending on when your unit is sold.
Centrelink considers that your entry contribution includes all amounts you must pay when you move into a retirement village. It does not include ongoing fees and charges for services and facilities.
The amount of entry contribution you pay depends on whether Centrelink considers you to be a ‘homeowner’ and if you will still be eligible to receive rent assistance. This figure is called the ‘Extra Allowable Amount’ and is the difference between the non-homeowner and homeowner assets test thresholds at the time the entry contribution is paid.
The Extra Allowable Amount is currently $203,000 (Oct 2017). Whether you are considered a homeowner affects the amount of assets you can own without affecting your pension entitlement.
If you are not considered a homeowner, your entry contribution is included as an asset. It is not classed as a financial investment and income will not be deemed.
Visit the Department of Human Services Website for more information.
The majority of accommodation options in a retirement village are independent living units. It's a good idea to think about your future needs and check if the retirement village also offers serviced apartments or if the operator is an approved provider for community care packages, which may allow you to stay in your unit for longer.
Nursing homes are sometimes located within retirement villages – but don't assume your future care is secured if you move into such a village. Nursing home places are regulated by the Federal Government, not State, and their allocation is determined on a needs basis rather than whether or not you're an existing village resident.
Retirement Village Checklist
If you're thinking of moving into a retirement village, as well as checking the contract, consider:
- talking to your family and friends
- talk to residents about what they like and don’t like about the village
- visiting a sufficient number of retirement villages to compare services, facilities and financial arrangements
- whether the services and facilities at the village will still be suitable as you get older. Are there any stairs, for example, and are the paths easy to access?
- does the retirement village provide optional support services if you need them, such as assistance with meals, cleaning and other personal services? If so, can you adjust your contract to include these services, and at what cost?
- whether there is adequate parking for visitors
- whether you can access local facilities such as GPs, shops, hospitals, libraries, churches, clubs and public transport
- whether you can make changes to the inside of premises – for example, in the event you need a wheelchair
- whether you can have someone stay over for a visit or move in
- whether you can have a pet
- does the retirement village have a bus? How is it used and maintained?
- Are residents actively involved in decisions concerning the level of maintenance and services provided and their cost? How may these fees vary in the future?
- does the retirement village have a residents’ committee and if so, how are its members elected?
- whether or not the grounds are pleasant and well-tended
- what common areas are available? You will probably have to pay for maintenance of these as part of your ongoing fees, so check what you will be paying for. Basic common areas might include a community room and outdoor sitting area. However, some retirement villages include extensive common areas such as a hairdressing salon, medical consulting room, workshop, bar, swimming pool, bowling green and barbecue area.
- what the security arrangements entail – e.g. is there sufficient external lighting?
- compare the retirement villages’ contracts. Before you sign up to one, make sure it reflects any verbal assurances you receive.
Exit fees – also known as deferred management fees – can be very complicated and may include one-off and/or annual charges over a specific period of time, for example 10 years. Examine your capital gain entitlement carefully as you may only get part back or possibly none at all; this could mean you suffer a significant capital loss. You may also have to pay an amount for refurbishment of the unit, such as new carpet or paint or even so far as a new Kitchen and Air Conditioners. Who decides what needs to be done and at what cost?
Residents point out that it can take a long time before you receive your exit entitlements; this usually depends on how soon your unit is resold.
Much of this information is set out in the standard factsheet that you can request from the village operator (by law, they must provide one on request).
Golden Age Advisory can provide the expert advice that can take the burden out of Retirement Village financial planning and help you understand the costs of moving to a Retirement Community by:
- identifying the fees and charges that will apply to you,
- calculating your pension entitlement and the other benefits of your decision,
- discussing the strategies for meeting your financial objectives - initially and ongoing,
- providing you with a comprehensive analysis of the options so that you really can make informed choices.
Moving to a Retirement Community can have wide ranging effects, including on:
- your pension entitlement and other benefits,
- your cash flow,
- the cost of a home care package,
- the amount of money you will receive after you leave, and,
- the value of your estate.
The information provided on and made available through this website does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.