Pensioner Poverty in a Retirement Village – The business models sanctioned and encouraged by Australian governments contribute to what is referred to in the industry as a poverty or financial trap.
Australia already ranks poorly in relation to pensioner poverty and sadly the business models used by the retirement village industry make a contribution toward these damning statistics.
The deferred management fee structure inherent in most models,, inflation, rising property prices, rising nursing home entry costs, village maintenance costs, village administration costs, village exit costs will over time reduce the capital value of the refundable amount due to a resident on exit from a retirement village.
This impact of the deferred fee, loss of earnings, inflation etc. on the amount to be refunded is something many pensioners / retirees will have to deal with. A change in circumstances without further financial resources often leaves a person in a financial position they did not envisage on entry.
Additional capital resources may be needed to meet the cost of any change in circumstances – ie: choose or need to leave the retirement village, re-enter the property market, meet the cost of a nursing home bond to enable entry into a nursing home of choice.
Many retirement village residents enter a financial trap they did not see on entry as a result of the ever decreasing value of the amount to be refunded on exit from the village.
The following table shows four different retirement village business models and the reduction in capital value suffered by pensioners / retirees once they entered a retirement village. The complexity of the business models and contracts of occupancy hide this path to ‘poverty’ for many older Australians.
Green – Deferred Management Fee calculated on the entry value – 100% of any capital gain to the resident
(45% of the market)
Blue – Deferred Management Fee calculated on the exit value – 100% of any capital gain to the resident.
(14% of the market)
Pink – Deferred Management Fee calculated on the entry value – 0% of any capital gain to the resident.
(20% of the market)
Orange – Deferred Management Fee calculated on the exit value – 0% of any capital gain to the resident.
(21% of the market)
Pensioner Poverty in a Retirement Village.