WHICH RETIREMENT DECISION IS THE RIGHT ONE?

The choice between independent living and a level of assisted care is a key step in the decision-making process when considering aged care options. However, a number of gaps need filling before making a final decision.

What will be the role of retirement living in an individual or couple’s transition to aged care?

Often, only one person at a time will be eligible to enter an aged care facility, which means there will be a period where a couple is living apart. The capital implication means having to maintain a family home while also funding a place in aged care.

These days, many retirement living and aged care providers deliver a full service offering so you can move through your aged care journey without having to change locations. With all the negative media coverage on aged care facilities, however, there may be, understandably, some anxiety around making a decision about what the right options are for you and what levels of care are appropriate.

The sustainability of the decision around longer-term financial and social implications is another key factor. At Sentinel, a broad range of people has successfully made the transition to retirement living but there are also those who are concerned that being embedded in a community may be ‘suffocating’. Sustainability issues also include the social aspect of the retirement living phase of life.

Having clarity around all the options is the most important thing – it makes the decision process much more approachable. There’s nothing worse than facing a major life decision when you don’t feel fully informed.

What does the landscape look like?

There are a wide range of options when it comes to retirement living, whether it’s an individual entering a retirement village for the social aspects or a couple who need support to lead the lifestyle they want with dignity and respect. NSW alone has thousands of providers. Options include:

Independent living (ILU): An ILU is what most people envision when they think of retirement living. It’s a standalone, self-contained unit within a community environment that has a number of communal facilities. You’ll also have access to different services with the village.

Serviced apartments: Usually found on the same site as an ILU, serviced apartments may have a smaller footprint than an ILU and offer some extra services (hence the name). There will be an additional fee for daily meals, in-room support and other services normally delivered through a home care package.

Home care units: These are a relatively new concept based on a collective of people all requiring serviced apartments. Under that framework, you commit to a weekly cost for care. While initially you may pay for more services than you require or use, later in your journey you’ll receive the care you need in your unit for the same price. Aveo, one of the larger groups in the aged care space, has merged with Freedom Aged Care, which offers home care units and villages.

Group homes: Group Homes is when you really step into aged care rather than retirement living. In a Group Home, there may be five or 10 residents, all with a high level of need, under the one roof. All that funding gets grouped together with an often high daily care contribution too.

Residential aged care: The typical high-care provision.

Ownership structures

There is a lot of uncertainty about the ownership structures available and which is the most appropriate depending on circumstances.

The first, and most popular, option is a leasehold. Most retirement villages will have one. It involves buying a 99-year – up to 200-year – lease and committing to an ongoing service charge. You’ll pay anywhere between $300,000 and $2 million for your leasehold and when you move out, you pay a deferred management fee.

The not-for-profit (NFP) sector offers a loan and licence system, which is similar to the abovementioned leasehold but that capital is treated as an interest-free loan and you receive a licence to reside in your unit. When you move out, the NFP may have a defined donation amount. Monthly fees apply as expected.

Strata ownership is less common. As with owning a unit in a building, you buy the airspace of your unit and it’s registered with the land title office. There will be an ongoing contract for your village but it’s a little more arm’s length in terms of integration than other arrangements.

Two other arrangements exist but are unusual to see: corporate title and rental. Corporate title enables you to buy shares in a company that owns the asset, while rental means you have no capital commitment but pay an ongoing rental fee.

Fee structures

This subject usually causes the most anxiety, particularly because you need to consider the future of the family home. When you’re dealing with an asset that is the cornerstone of many households’ wealth, it makes the decision far more challenging. So let’s look at the various fees you’ll need to pay under different regimes.

What fees can you expect to pay?

The idea of a retirement village is similar to living in a standard block of units, except there is a far higher level of communal infrastructure provision. When it comes to the operation of the retirement village, independent living units and serviced apartments contribute to that global cost on a floor-space basis, so ongoing service charges for a three-bedroom unit, for example, will be higher than a one-bedroom.

The average service charge across Australia is about $350 per month. If you live in a block of units with swimming pools, gyms and more recreation areas, then you’ll pay more to maintain all those services – and it’s the same for retirement villages.

Home care packages: When you consider ongoing and escalating care needs as you get older, then the cost of home care packages will grow too. In a retirement village, you can have the same access to home care that you would if you were living at home, with the main difference being that often the retirement village operator is also the registered home care provider.

Serviced apartments: Charges normally cover three meals a day and more frequent servicing of your room, including linen and cleaning. This is an additional level of support than what is offered in independent living arrangements and comes at an extra cost (about $2000-$3000 per month).

Deferred management fees are frequently mentioned in the media and can cause considerable anxiety if someone doesn’t understand the contract they’ve signed up for. When you look at all the retirement options available, the only one that doesn’t require paying some form of deferred fee is a rental arrangement. These fees can amount to 40 per cent of the value of your unit. They can incrementally increase at different rates, and you could potentially hit 35 per cent after only three years if you need to change care levels or providers as you age. It is imperative to ask questions about your contract; for example, if a couple buys a unit and one person passes away, does it trigger a deferred management fee?

Apples vs oranges

While the care options may be clear, comparing options in the aged care space is tricky, because the ownership structures and regulations that govern the operation of retirement villages are all different. The actual content in a contract – how it works and what consumer protections are in place – is still loose. And while regulations pertaining to aged care have improved dramatically, it remains difficult to ascertain details from the various providers. It’s easy to find out what’s for sale, but extracting information to understand the fee structure behind it is challenging. It’s very much ‘buyer beware’ at this point.

Option 1 – Aveo Fernbank1 bed serviced apartment – $450k – service charge $3,500

2 Bed unit – $780k – service charge $2,100 (Deferred management fee 35% in 3 years, plus Aveo Benefits Fee of $1,500 per year capped at 10 years)

Option 2 – The Cotswolds Village1 bed serviced apartment – $525k – service charge $5,741

2 bed unit – $785k – service charge $4,243 per quarter (No Deferred management or exit fee)

Conclusion

There is nothing ‘standard’ about retirement living. Be sure to research all the options in your preferred location and, importantly, be across the detail in your contract. While this document is complex and long, buyers need to understand what’s in it when considering their options. In the aged care space – more than most others – it’s vital to know how the future will unfold. Seek advice from a professional adviser.