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People are living longer and that means more and more of them – and their families – are having to look at options for retirement living and aged care.

The number of people in permanent aged care in Australia is expected to triple in the next 30 years to 700,000 in 2050.
Many more are opting to move from their family home into a retirement village and either live completely independently or with some assistance.

Some retirement village operators are building facilities that offer different levels of care and residents can move between them as their needs increase. Other older people look at privately owned hostels and boarding houses, which are lightly regulated. Residents must deal directly with the operators.

There is also a trend in building new property developments that embrace older people, where apartments have no steps, have wide doors for wheelchairs and walking frames and come with separate apartments for carers and common areas for socialising. Again, residents can live independently or with increasing assistance as they get older.

Although we all wish to remain in own homes in good health until well into old age, most people will require some form of assisted living at some stage.
With options increasing, the aged care and retirement industries have become more complicated. Decisions often involve large sums of money. No one should be too hard on themselves because they don’t understand the options. Thankfully, there are people around who can provide assistance with moves into retirement villages and aged care facilities.

The problem for the federal government is that the more people who move into aged care, the greater the amount of subsidy that it must pay. In the 2018 budget, the forecast expenditure for ageing and aged care was $18.7 billion, rising to $22.1 billion in 2021-22. Via its aged care roadmap, the government has indicated it wants people to live at home longer, reducing the need to support aged care. And retirement villages represent a good halfway house because they require less government funding.

As an example, for each aged care resident who is judged to be high care in the three key areas – activities of daily living, behaviour and complex health care – plus supplements, the government must stump up $248.75 a day, or $90,794 a year. For residents judged to be low care in each of these areas, the amount drops to $62.47 a day, or $22,801 a year. It is a massive difference.

A person who needs to be approved for government-funded services – including aged care, home care, residential aged care, transition care or respite
care – must complete an aged care assessment by an assessment team. The assessment is used to make a recommendation for the type and level of care that will best meet a person’s needs.

Different families look for different things at aged care facilities. However, the core features that should be checked include: the number and quality of nursing staff, therapy services offered, and assistance with personal care; basic services such as beds, bathroom/ensuite facilities, mattresses, linen and bedroom furniture; the ability to provide a range of care needs as a resident’s health declines; ongoing daily programs and activities to engage and stimulate the residents; and close proximity to family.
The aged care industry is predominantly ruled by federal law, although some facilities known as supported residential services are governed by state law and are registered and monitored by state governments. These facilities are generally private businesses and there is no government guarantee for any bonds paid by residents.

Up to $2m to secure a spot

Federal laws set down daily fees that can be charged by aged care facilities and the interest rates that they can charge on the unpaid proportion of the refundable accommodation deposit (RAD), formerly known as a bond. A RAD must be paid to gain a spot at an aged care facility and comes with three options: pay in full, part-pay and pay interest on the balance (currently set at 5.96% a year) or pay interest only on the whole amount.

A RAD can be as high as $2 million to secure a bed in an aged care facility. In many cases these RADs are negotiable. Willingness to negotiate on a RAD depends very much on the demand for, and the supply of, beds in a particular facility.

It is important to note that the RAD is a fully refundable deposit, not an investment. Essentially, it works like an interest-free loan to the aged care facility. These deposits form an important part of aged care facilities’ financial operating models, enabling them to renovate and upgrade their facilities and build and acquire new ones. In a government-accredited aged care facility, the accommodation deposit is fully government guaranteed.

The basic daily care fee for a resident in an aged care facility ($50.66 a day) is set at 85% of the full age pension. All residents must pay this fee. However, it does not cover the full care costs of the resident. The government may ask the resident to pay an additional amount as a means-tested fee and then it pays a subsidy for each resident’s care needs to make up any shortfall.

The means-tested fee is set by the government and collected by the aged care facility based on an individual assessment for each resident. It is an attempt by the government to ask residents with the financial capacity to contribute to the cost of care. This fee can range from nothing to a maximum $248.75 a day.
The extra services fee, which can be as much as $120 a day, provides for additional services like a choice of meals, alcohol at meals, expanded activities program, cable television, daily newspapers and so on. Some facilities even provide residents with iPads.

For a breakdown of how this fee is calculated and how it impacts your aged care, see The Complete Guide to Aged Care Costs in Australia: Understanding the Financial Options and Obligations.

Work through the fine print

Deciding to move into a retirement home or a retirement village may seem a sensible option in a person’s senior years but the retirement home industry is a byzantine one that requires many documents to be read and absorbed and decisions to be made involving large sums of money. Many contracts for retirement villages run to more than 100 pages and include clauses enabling the operator to force people to move out if they are deemed no longer to be able to live independently.

While the price paid for a room in residential aged care is fully refundable and guaranteed by the government, the fees and costs deducted from the amount originally paid for accommodation at retirement villages can be significant.

Ultimately residents (and their families) must understand that they are making a lifestyle decision and not a financial investment when they enter a retirement village. Village operators have come under criticism recently because of “management fees” that many charge on units. When a person “sells” the unit or leaves, a large percentage of the value of the unit can end up with the operator.

The recent news that big retirement home operators are introducing new payment options for management fees may mean more choice for consumers but the
changes will doubtless further complicate an already obscure industry.

Following recent coverage by ABC’s Four Corners and Fairfax Media, several state governments announced inquiries into the retirement village sector. The results to date have been mixed (in Queensland, legislation was introduced to help safeguard the rights of potential residents) but the industry has agreed that it needs to simplify things.

Depending on who you are dealing with, people generally have four types of agreements to choose from when trying to select a retirement village: a
long-term lease/licence, a strata title, a company title scheme or a rental. When you commence discussions with a village operator, they are required to provide you with five pieces of information: a copy of the residence contract, a copy of the management contract, the disclosure statement, the village fact sheet and the village rules and by-laws

Whereas several years ago exit fees were typically 3% of the value of the unit per year of residence, capped at 30%, some owners of retirement villages today charge a flat fee of 15% of the value of the unit if a person leaves within the first year, 25% if the person leaves between one and two years and 40% if the person leaves after two years. There have been accusations that retirement home operators “churn” customers to attract these high exit fees. People have to take all this into account when making their decisions.

Ownership in the retirement village sector is widespread, with the top five operators controlling only 28% of the market. The balance is controlled by community and church-run, not-for-profit operators and smaller owner-operators.

Living the high-rise life

Vertical retirement living is the latest buzz phrase in retirement and aged care. The term refers to high-rise buildings, often upwards of 10 storeys, into which retirees can move from the family home. They offer independent apartment living with communal areas and many are linked to aged care developments, either in the same building or next door, where retirees can transition as they get older and require greater levels of care. Couples can remain close to each other if one needs to move sooner than the other. Clearly, having one parent in an apartment and the other in aged care is not a cheap arrangement, and may be out of reach of many families. It also depends on bed availability.

Australian Unity has 19 retirement villages in Victoria and NSW, incorporating 2363 apartments and 711 aged care suites. Beverly Smith, Australian Unity’s executive general manager for residential communities, says vertical retirement living offers retirees something that they tend not to get in standard retirement villages, which are typically situated in outer suburbs. “Many people who have lived in or near city centres want to stay in the area,” she says. “They want to be near friends and families and want more flexibility and choice. They want the vibrancy and the culture of the CBD.”

This year Australian Unity aims to complete Melbourne’s The Grace Albert Park Lake, which incorporates 79 apartments in 18 storeys. Prices vary from $650,000 for a one-bedroom apartment to $1.142 million for three bedrooms. Under its deferred management fee model, tenants pay management costs on departure and share in the capital gain when apartments are sold.

Stockland is following a similar model with a vertical retirement village at Birtinya, near Caloundra on the Sunshine Coast. The first two storeys of the eight-storey block are reserved for a community centre, gym, wellness centre and salons, while floors three to eight have 140 different-sized independent-living apartments. Notably, Opal Aged Care runs an aged-care facility next door, enabling tenants to move from retirement into aged-care in the same area.

Note: Figures are accurate as of the publication date