The purpose of this article is to:
explain recent developments in Government legislative reforms in the context of
an increasingly ageing and financially vulnerable population; and
thoughts for the implications to the industry.
no longer a matter of debate that Australia's population is ageing and, to a
large degree, it is so well known by the general population, that it is often a
dinner party discussion point.
What is not so well known or understood are the financial demographics
of the ageing population and the corresponding effect this will have on the
It is my view, that Government is very much aware of the issue and has
taken quite direct and dramatic steps to prepare and be ready to protect
residents in the future from their financial circumstances. What appears to be lacking is the
industry acknowledgement and response to the issue.
A recent paper prepared by the National Aged Care Alliance in September
2006 discussed the challenges facing the community in relation to the cost of
care in the future. It is a paper
designed to explain the shortfall, currently estimated at $6 billion, and lobby
Government for reform. Though it
is aimed at the pure 'aged care' sector, it contains a number of facts and
statistics that are relevant to both the 'aged care' and the retirement
Citing the paper and drawing on the findings of the review undertaken by
Professor Hogan in 2004, 80% of older people have no assessable income and that
by 2032-2033, that figure will drop only to 57%. Furthermore, by 2032/2033, 40% of older Australians will
have assessable assets less than 2.5 times the annual pension.
It is not difficult to see that Government has realised the emerging
problem of an ageing and financially insecure population and has taken steps to
introduce a number of reforms to provide certainty for residents as to their
future costs of care and accommodation.
Recent reforms in this regard include providing certainty as to:
- the cost
of provision of services in villages – the New South Wales recommendations for
reform to the Retirement Villages Act will make the operator responsible for any
shortfalls in operation of retirement villages. Queensland already has restrictions on increases in
refund of ingoing contributions in villages – Victoria and Queensland amended their
respective Acts in 2006 to provide greater certainty for the timing and
amount of refunds of ingoing contributions. New South Wales, through the 'owner'/'non owner'
dichotomy has applied 6-month refunds for 'non owners'
refund of accommodation bonds in low care facilities – in May 2006, the Federal Government introduced reforms
to provide for a Federal Government guarantee of accommodation bonds
provision of subsidised care to residents in villages – in May 2006, the Federal
Government announced the successful implementation of the Retirement Village
Care Pilot Program and has now extended community aged care packages in
villages to approved 'operators'.
The uncertainty of the financial future for residents and its effects
on providers is already apparent. Prospective
residents are exploring and balancing their independent means of living with
services and benefits granted through the pension or otherwise by
Centrelink. This financial
engineering by retirees has seen increases in the levels of accommodation
bonds. It is also apparent in the
context of the current depressed property market. Prospective retirees are delaying entering a village as they balance the 'social'
benefits of entering a village against the financial effects of the price for a
leasehold interest in a village (plus the fees and gains issues) being in some
ways comparable to their depressed home value making the option 'unaffordable'
or 'of less utility'.
It is, in my view, naïve for the industry to believe these reforms are
linked merely to consumer protection measures or rogue operators. It is more sensible to view the reforms
as providing certainty to a sector of the population seeking to grapple with
extended longevity and limited resources to fund their retirement.
There is the argument that lifestyle villages do not provide care. The counter is that all legislation
defines a village by reference to the provision of 'services' by an operator to
residents. Services may be general
or resident-specific ('personal services') but they are services nonetheless. A 'concierge' who arranges others to
attend may not be a 'carer' per se but they do give a resident peace of mind
and security and they do come at a cost.
In this light, it is difficult to believe the industry can assume the
population will all be self funded retirees able to cope with the 'actual cost
of operation' structure in villages while enjoying sea change 'lifestyle
resort' living. I believe it s is more realistic for operators to plan
for their villages to continue to be occupied by people who will rely upon
support of some description from Centrelink or under the Aged Care Act and will live on 'fixed incomes'.
The retirement village industry will probably have no choice but to deal
with the issue of affordability and think of alternative structures in relation
- levels and
timing for payment and repayment of ingoing contributions
- levels and
timing of deferred management fees
- sharing of
capital gains generally; and
as to the payment of recurrent charges.
At the moment, there are a number of institutions and operators
considering how the model should work in the future and who are taking steps to
prepare themselves. It will take
more time and effort to come up with all the answers but it is very likely that
once a model is developed that provides certainty for residents as to tenure,
cost of care and refund of contributions, it will be very popular with
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