Need to know
- Many retirement village residents are unpleasantly surprised by the high costs of leaving the village
- In many cases, large sums are deducted from the 'ingoing loan' residents pay to enter a village, meaning they don't have enough to pay for aged care
- Advocates say it's unfair that a retirement village unit should cost so much more in the long run than other property options
Like many older Australians who buy into a retirement village, Frank and his wife Stella are discovering that getting out can mean taking a huge financial hit. In fact they may not be able to afford to leave.
In 2015, they handed over $326,000 to live in a unit at a village in Queensland's Sunshine Coast region. Now that they've "settled down to a life of medical appointments", as Frank puts it, the couple have been wondering how long they'll be able to stay there. At some point, an aged care facility may become necessary.
The steep entry fee was really just an interest-free loan to the village operator rather than a purchase price, which is how the system works. The couple have also been paying monthly fees, similar to mortgage or rental payments. They'll get some of the $326,000 back, but not nearly as much as they thought.
We've been told if we ever move out we'll lose $87,000 in exit fees
Retirement village resident 'Frank'
"We've been told if we ever move out we'll lose $87,000 in exit fees," Frank tells CHOICE.
He and his wife will also have to come up with the money to return the villa to its original condition, "throwing out window shutters, ceiling fans, even lifting floor tiles and restoring carpeted floors," Frank says.
If this was somewhere in his contract, Frank must have missed it.
Along with the punishing exit costs, the practice of making residents refurbish before they leave is not limited to Queensland. Our earlier reporting on this issue cited cases of operators in Western Australia demanding that residents gut well-appointed units at their own expense, even though they had paid good money over the years to improve them.
Many residents don't discover just how financially damaging a retirement village can be until they try to leave
Such are the stark realities of the retirement village market in Australia. We've heard from a number of consumers in recent years who have come to learn that paying your way into one is more of a lifestyle choice than a well-considered financial move. But many residents don't discover just how financially damaging a retirement village can be until they try to leave.
In recent years a range of advocacy groups – including the Consumer Action Law Centre, National Seniors Australia and Council on the Ageing – have called for an overhaul of the retirement village model. But that has yet to happen, and village operators continue to wield disproportionate power.
Surrendering your nest egg
Like Frank, many residents sell their homes to afford the high up-front costs of entering a retirement village. The nest egg you're required to surrender is generally called an ingoing loan or contribution, and it's the way it works in retirement villages across Australia.
In practice, it means you hand a small fortune over to the village operator and they decide how much you get back if you decide to leave. The formulas in the contracts that determine this figure are rarely understood by residents.
When you leave you'll likely have to pay a 'deferred management fee' as well as other fees until the unit is sold to a new resident. With the fees coming in, operators are often in no hurry to find one.
Buying into a retirement village is more of a lifestyle choice than a well-considered financial decision.
Unfair fees and confusing contracts
In the view of one long-time advocate of retirement village residents' rights in Victoria, Charles Adams, these financial arrangements have long benefited village operators at the expense of residents.
In 2002, Adams and his wife paid $400,000 to live in a unit in a village run by one of Australia's biggest operators. It wasn't a bad lifestyle choice, but in the ensuing years Adams has come to realise that the deal was always lopsided in the village operator's favour.
I thought I'd be able to get some of the people in the village to understand the unfairness of it
Retirement village resident Charles Adams
He has spent the past several years trying to raise awareness of this with both residents and advocacy groups, but the complexities at hand have made it difficult to gain traction.
"It has taken me far too long to understand my contract," Adams admits. "I thought I'd be able to get some of the people in the village to understand the unfairness of it. But they only say, 'well, we're happy here. Go away you silly old bugger'. But I understand that."
Adams' deferred management fee, which is based on how many years he and his wife have lived in the village to date, currently sits at 27% of their ingoing contribution, or $108,000.
Then there's a five percent charge payable upon exit for the village's 'capital management fund' – another $20,000.
That's just an estimate of how much the village operator would take from their exit entitlement if they moved out this year. It's likely not the full extent of the exit fees they would face.
More expensive than owning or renting
In a recent presentation to the Victoria-based non-profit Housing for the Aged Action Group (HAAG), Adams reiterated a point he's been making for years: that the ingoing loan model means you're buying what amounts to a lease .
With monthly costs and exit fees factored in, Adams maintains that residents will likely end up paying a lot more for a retirement village unit over the long run than they would for a strata unit or even a normal residential lease.
His projections have led him to a simple observation: housing developments designated as retirement villages can easily end up costing more than other options. It's a view backed up by recent reporting on this issue by the ABC, which included a CoreLogic analysis indicating that departing residents are significantly worse off financially than they would have been if they'd bought a non-retirement village property.
With few exceptions, village residents don't discover they have been taken advantage of until after contract termination and settlement
Retirement village resident Charles Adams
"Why must retirees pay so much more because the housing group is called a retirement village by the operator?," Adams asks.
The Victorian Retirement Villages Act refers to the ingoing loan as a 'donation'. Adams believes the property development lobby had undue influence over shaping this financial model, a point made by advocates in other states. For residents, the legislation lays the groundwork for a trap waiting to spring shut, Adams says.
"With few exceptions, village residents don't discover they have been taken advantage of until after contract termination and settlement."
Australia-wide reforms of recent years
Retirement village residents around the country have long borne the brunt of various financial inequities, and state-by-state reforms of recent years have helped mitigate some of them.
In 2019 we reported on reforms in NSW that threw some much-needed light on the area of ongoing fees and exit costs.
They required village operators to hold regular meetings with residents to explain what their contracts actually say, focusing especially on how much of their ingoing contribution they could expect to get back and how long they'd have to keep paying fees after they moved out.
A prospective NSW village resident stood to lose $120,000 of her $515,000 ingoing loan if she left the village any time after 90 days
The NSW reforms also required village operators to give incoming residents an estimated breakdown of what their ongoing costs would be and how much of their ingoing loan they would recover if they left after certain time periods.
The new disclosure rules put a fine point on the issue of exit costs. In one contract we reviewed following the reforms, a prospective NSW village resident stood to lose $120,000 of her $515,000 ingoing loan if she left the village any time after 90 days.
Retirement village contracts are notoriously convoluted and opaque, with few incoming residents understanding the long-term financial implications.
Making village operators pay what they owe
Other state reforms of recent years have targeted historically long delays in residents receiving what's left of their ingoing loan, known as an exit entitlement. In Victoria, for instance, village operators now have to refund up to 85% of the estimated refundable portion of an ingoing loan before the unit goes to a new resident to help pay for aged care.
In South Australia, operators have to pay for a departing resident's aged care facility and then they can extract that expense from the exit entitlement once it's paid.
In 2022, Western Australia passed reforms that required village operators to pay back exit entitlements within 12 months, and to cover aged care costs for departing residents, if necessary, during the waiting period. (Costs would be deducted from the exit entitlement.)
Prior to this change, it could take three or four years for former WA residents to receive what they were owed.
Trapping retires in 'terrible conditions'
The Housing for the Aged Action Group (HAAG) operates a retirement housing advice service in Victoria, and retirement village residents regularly raise the issue of unexpectedly high exit costs, says executive officer Fiona York.
"Both the obvious and the hidden costs of retirement village residencies, including deferred management fees, are a huge concern for our members and clients," says York.
"Apart from the financial impact, a system where the cost of housing is paid when a resident leaves can create incentives for operators both to end residencies prematurely and artificially extend them."
HAAG has documented cases of village operators both pressuring residents to leave so they can collect exit fees and delaying the sale of a unit so they can continue collecting maintenance charges.
A system where the cost of housing is paid when a resident leaves can create incentives for operators both to end residencies prematurely and artificially extend them
HAAG executive officer Fiona York
York calls the ingoing loan model a financial arrangement "that massively exceeds the actual costs of living in the village and traps older people in really terrible conditions".
"We regularly see villages that are badly managed, poorly maintained, or where managers routinely bully and harass residents. But the residents can't leave because they'd lose tens of thousands in exit fees, and have to pay an outsized ingoing contribution to move elsewhere."
'I believe they should be cancelled'
Given the money they'd lose if they left their village, Frank and Stella aren't sure what to do. To make matters worse, they've recently been told their monthly fees are going up – a lot. Services that were once part of the deal have been rescinded over the years, but everything costs more.
"The village operator claims wages are the cause of the fee increases, but there appears to be a big difference between the latest CPI figure and the percentage rise in the fees," Frank says.
It's not until you actually work out how the costing is done ... that you come to the conclusion that the whole thing is a bloody con
Retirement village resident Charles Adams
Having spent many hours poring over the wording in his and other retirement village contracts – and having done the maths – Charles Adams is on a mission to improve outcomes for residents.
"It's just so complex that it's not until you actually work out how the costing is done and compare it with a residential tenancy that you come to the conclusion that the whole thing is a bloody con."
As for his and his fellow residents' current contracts, "I believe they should be canceled," Adams says.
But the village operator has his $400,000, and what he and his wife may end up getting back someday is out of his hands.
(Frank and Stella are pseudonyms.)
Stock images: Getty, unless otherwise stated.
