Aged Care

[DocK]

The great retirement rort

Alan Kohler


Industries
Financial Services

If the government is looking for a way to redeem itself in the eyes of the nation’s ripped-off retirees after the CBA financial planning fiasco and its pro-bank FoFA amendments, I have just the answer: the scandal that is retirement villages.

The way most of these things operate is as crooked as bank-owned financial planning and property spruiking. In fact retirement villages and aged care accommodation are the progeny of the worst of both.

Australians get creamed by the financial advice and wealth management industry while they are saving for retirement and then get scalped when they get there.

And by the way, this is a financial industry not controlled by the banks, so the government can be tough on it without upsetting its banking friends, who persuaded them to amend the Future of Financial Advice laws.

Tony Abbott and Mathias Cormann need to step in and clean up retirement accommodation, and what heroes they would be if they did it: their supine performance over the CBA and bank financial planning generally might even be forgotten.

http://www.businessspectator.com.au/
I have an elderly mother, who thankfully is in pretty good nick for her age and is able to live alone in her own home, but she's often shared horror stories with me of her friends and their experiences with aged care facilities. It seems so wrong that older people who have no option but a care facility have little choice in whether they're fleeced, just perhaps in which way they're extorted.

I agree with Kohler on this one, I'd love to see the industry cleaned up.

 

[chiff]

I think Allan Kohler is taking about aged care villages type of accommodation where people buy their unit outright,and then get fleeced by the indecent rules that they unknowingly sign up to. .
Aged care facilities are controlled by governments.Mainly state,but a lot of their funding comes from the federal government.
But as you say,best to stay away from these aged care inventions.Accommodation of last resort!

 

[chiff]

I should have added that there are a lot of private aged care facilities,owned by a mixture of private organisations-not for profit and otherwise.Religious denominations are prominent in ownership,as are local governments etc.
These have tighter controls and adhere to a strict code of care.
Aged care villages are different ,but I reckon a lot of these would be owned by local government as well.Semi-indepent living mostly ,but also totally independent.

 

[Julia]

Alan Kohler's article makes a clear distinction between retirement villages and hostel/nursing home care.
They are entirely different.

Retirement villages are becoming very luxurious and sophisticated. They do not provide any care, simply your own villa or unit in which you can live as independently as you can in the general community. Some will build whatever you want, even a stand alone house with five bedrooms, double garage, own pool etc. Some of them now are like five star resorts, with restaurant, bar, dance floor, multiple hobby workshops, indoor and outdoor heated pools, tennis courts, bowling greens, golf driving ranges, and are often set in very attractive surroundings.

They provide lots of activities for those who are interested or if someone prefers to keep to themselves, that's fine too.
Yes, the deferred fees are extraordinarily high. But many people are happy to pay, e.g. between $600K and $1.2 million or more (this does not buy you the land, just the dwelling) when they no longer want to worry about maintaining a large garden, mowing lawns, cleaning a pool. If so much as a smoke alarm battery needs changing, just pick up the phone and someone will be there to do it for you.

These same people also apparently enjoy the built in social life and support of being surrounded by others in similar circumstances. No yelling kids, no cars doing burnouts in their street. Their property meticulously maintained if they go on a cruise for a couple of months.

As far as the weekly fee not being justified, I haven't looked into all the figures enough to know about that.
But it's pretty expensive to pay all the council rates (which are included in the weekly fee), maintain very large pools heated to 30 degrees year round, maintain all the other facilities, run a village bus to various places daily etc. for peanuts. The people I know in such places are paying about $160 p.w. which doesn't seem unreasonable to me for all that provided and no effort required.

My mother went to one of these retirement villages in NZ for a few years before she died. She was far happier than she was when worrying about the maintenance on her own house. She had a beautiful, modern villa and the staff couldn't have been more helpful whenever required. She quickly made new friends and just loved these last years of her life. So for her it was absolutely worth whatever it cost, roughly a third of her purchase price in deferred fees.

A few retirement villages - mostly the older ones - do have hostel and nursing home facilities close by, but as already noted above, completely different financial requirements apply there. I know these changed from 1 July but don't know the details.

I don't agree with Alan Kohler that it's any sort of scam or rip off. Those terms imo apply when the contract conditions are not transparent. No retirement village whose documentation I've ever read has been anything but absolutely clear about the fees involved.

From Kohler's article:

There are a variety of deferred fee schemes contained in retirement village contracts and they all rely on the fact that when an elderly couple signs it, they tend not to pay much attention to what might happen to the assets when they die.

They usually don’t get legal advice and don’t really understand that the village owner, typically a property development company, will get a “deferred fee” of more than $100,000 when it’s time to move on to the next phase of life, or death.

(Bolding is mine.)

Well, whose responsibility is it? The retirement village lays it out absolutely clearly. It's up to the prospective client to do their own research, read the documents properly and take it to a lawyer who specialises in the area.

It's a growth industry. The development companies are there to make money. They are not scamming anyone.
People can accept the terms or look elsewhere.

 

[chiff]

You are a hard woman Julia!

 

[basilio]

Long story Julia on the merits of Retirement Villages. I can see many good points in the idea and I can appreciate that the companies involved are there to make money.

The question is how much money ?

Alan Kohler is pointing out how the developers ensure a very large profit by

1) Maximizing the exit fees
2) Ensuring that running costs are well and truly covered in the meantime.

Retirement Villages are unlikely to be the end point of a person's life. What is most likely to happen is that as they become more frail they have to move on to a aged care facility. That's the point at which the exit fees and loss of value will become important when people have to try and fund an aged care place.

The comparison I would make is to the behaviors of Life Insurance companies and the Financial Planning industry. Creative story telling, long term contracts, high ongoing fees (morphed into exit fees) , "creative" fees, little opportunity to effectively rebut the situation. Once you have been signed up your shorn..

 

[basilio]

I tried to read the original article but couldn't get in. I did note comments made below the story. Interesting and apposite

As a result of major concerns I undertook an extensive review of this issue in late 2006 at my cost for no personal gain. No one was particularly interested. Below is a broad summary of my findings:

• All the elements of a combined property development and retirement village transaction are complex and based on legislation which appears to provide a loophole for developers to exploit.
• The risks in such transactions are significant. The law provides an inadequate level of regulation and disclosure on privately owned companies to protect the interests of people who are involved in the decision making process approving these villages and more particularly protecting the financial interests of people who genuinely wish to reside in them.
• In drawing comparisons with the financial services and property sectors, the Act, Regulation and Policy provides an inadequate level of consumer protection for those investing in retirement villages compared to protection required by other financial and property contracts governed by Commonwealth and NSW State legislation.
• The level of regulation, standards of governance, disclosure and financial protection provided to investors in retirement villages through the Act and Regulation are weak.
• The financial structure of retirement village investments is heavily weighted in favour of the developer or village operator and the potential for loss of investor capital is significant when compared to other residential property investments.
• The requirement for effective and affordable retirement living is an accepted requirement in our society, but existing government legislation, regulation and policy fails to meet the needs of people in this position. Risks to investors are not acceptably managed and controlled.

I am delighted that someone like Alan Kohler is now picking up the cause for the thousands of people who are being “ripped-off” by unscrupulous behaviours and major loopholes in current legislation.

 

[Julia]

Basilio, yes, good point about retirement villages possibly not being the end point in someone's life. On the other hand, they might well be, as governments propose to more and more bring care to the person rather than dump someone in a nursing home, most of these being underfunded and therefore understaffed. I read an item recently where dinner in one nursing home was one party pie and half a slice of bread and butter.

What I'm trying to explain is that going to a retirement village is a personal choice. Some people will find the attractive features of such a place entirely worth the cost. Plenty of people around with the money they have accumulated during their working lives with just such a purpose in mind.

 

[basilio]

Julia your quite right to note that retirement villages are a personal choice. But then isn't almost every other purchase we make a similar personal choice?

Alan Kohlers article was not trying to trash retirement villages as good places to live. He was just highlighting what he saw as excessive costs and charges associated with them - much like the other examples I offered.

And there are also risks that have bitten a number of people and are worth addressing.

The Federal Court finding five former directors of Australian Property Custodian Holdings Ltd as liable for breaching their duties as officers of the company. The company was the responsible entity of the Prime Retirement and Aged Care Property Trust (Prime Trust), a management investment scheme with retirement villages in New South Wales, Queensland and Victoria. Collapsing in 2010, the company owed investors $550 million.

http://www.propertyobserver.com.au/...ment-groups-falsified-mortgage-documents.html

http://www.villages.com.au/info-centre/post/retirement-villages/woniora-village-saved-from-collapse

 

[ghotib]

I've been negotiating the aged care maze for the last 6 months. My mum has just moved to an "aged care facility" (aka nursing home) from the retirement village where she lived for 20 years, first in a cottage and then in a studio apartment which will go on the market next week (anyone interested please make an offer). Some points from this recent experience that might be relevant to the Kohler article:

* The contract for the sale of Mum's apartment is over 500 pages, most of them the work of the village operator's lawyers and not open to negotiation. I don't believe that any document of that length can be absolutely clear, even if that's the intention of its writers. This one certainly isn't.

* We've found that the system is too complex and too open to interpretation for anyone to be able to explain more than a small part of how it works. Each facility can tell you their own practices, but it's still really difficult to compare them. The level of care/assistance available varies even within classifications. And of course the rules keep changing and the only people who can keep up are the people who work with them all the time.

* The deferred fees are taken when you "leave the dwelling", which doesn't always mean when you die. Mum's village charged them when she moved from the cottage to the apartment, which took us by surprise even though 3 family members and a lawyer had gone through the documentation. We were surprised again during discussions for the sale of the apartment: they told us no further fees are payable.

* Nursing homes charge a bond on admission. In our case the bond is more than 3 times the asking price for the apartment and about 1.5 times the value of a cottage in the same village. If that is, or becomes, typical then the deferred fees from a happy life in a village might severely limit options for the next stage. IMO thinking about your own possible admission to a nursing home is a lot harder than planning for mere death.

* Over the last couple of years concern has been growing that many of the people who are supported in their own homes are suffering because they become isolated and depressed. This might suggest that there'll be a policy swing back to encouraging the elderly to move into places where contact with other people is easier.

From Kohler's article in the original post and the comment that Basilio posted, it seems that much of the scandal and rort affects retirement village investors, and residents might have no way to know there's a problem until there's a collapse. Has there been a Storm Financial or a Timbercorp of retirement villages yet? I haven't heard of one, but the possibility is sickening.

 

[Julia]

Ghoti, your experience is awful, and worrying. It reminds me of an instance about which I posted a few months ago (can't remember the thread now) about an apartment in an aged care establishment where the management retained the right to sell. The contract apparently did spell this out. The old lady living there died, and her two sons expected the sale of the place would be straightforward. In the meantime, they were obliged to continue paying all the weekly fees associated with the property. At the time of the report, I think this had gone on for some years and any value that might have existed in the property had pretty much been used up in the fees paid. This even included an additional quite large amount as payment for contribution to kitchen or some other facility upgrade.

I don't know what the recent changes to how nursing homes are paid for are but I suspect may be even more complex than they were.

It seems reasonable that the nursing homes should receive a bond, I suppose. Some of the amounts seem very high and it doesn't seem right that just because someone can afford to pay several hundred thousand, they should be obliged to do so. Perhaps there's a cap?

Just back to villages: there are also the so called 'relocatable villages', often quite large establishments with rather flimsy looking little units not dissimilar to those seen in some caravan parks. Apparently they are free of any deferred fees, but the weekly fee can be very high and the resale prices low as the villages age.

Thanks for telling us about what you've experienced. Much to be wary of . Hope your mother is managing to cope with it all.

 

[basilio]

Ghotibs experience with retirement villages and your last recollection Julia sum up the main concerns with the industry. Essentially it is very clever, highly commercial operation that plays the long game.

People are persuaded to buy into a village at what seems to be an affordable price with the promise of community facilities, company and perhaps extra paid for care.

I'm sure there are many good points to Retirement Villages. The issue comes if/when you want to leave. The very complex agreements ensure that the developer makes a very good return from each turnover. The seller pays for refurbishment, other costs and leaves a substantial amount of equity behind. In fact retirement villages don't want people to stay too long. The best value for the industry is rotating people after 7-10 years

http://www.consumer.vic.gov.au/hous...es/deferred-fees-departure-fees-and-exit-fees

http://www.blog-findmyretirementhome.com.au/understanding-exit-fees/

_________________________________________________________

The last website find my retirement home seems to offer a very informative, clear eyed view of the business. Well worth a read

 

[basilio]

The website "Findmyretirement home" also sells a book that researches many of the issues raised in this thread.

Looks useful

The Book
Nov 30, 2011 Posted Under:

If you or a member of your family are thinking about buying a retirement home, then this book is the essential guide you need to assist with your research and negotiate your purchase.

Around half of all retirement communities in Australia are now owned by large property companies, developers and investment banks. They spend millions of dollars on lawyers and tax advisers to draft purchase contracts that are designed for one thing only – to increase their profit.

http://www.blog-findmyretirementhome.com.au/your-unfair-advantage/

 

[Julia]

I'm sure there are many good points to Retirement Villages. The issue comes if/when you want to leave.

Yes, indeed, or potentially for your family or other beneficiary if you die there. That's why to go to such a village is a huge decision. Not like buying a house in the community then finding you don't like the neighbourhood, when you can simply sell via market forces.

I only know one person who moved into a village then didn't like it. (I think it was the 'relocatable' type where the deferred fees don't apply) and she just disliked being so close to other people and what she described as the gossipy environment. That's one of the things that would put me off also.

The very complex agreements ensure that the developer makes a very good return from each turnover. The seller pays for refurbishment, other costs and leaves a substantial amount of equity behind. In fact retirement villages don't want people to stay too long. The best value for the industry is rotating people after 7-10 years

Yep, no wonder it's such a growth industry.
Still, a lot of people are very happy living in a nice individual villa, with all pleasurable activities available and maintained by anyone other than themselves. I can quite see how attractive that part would be.

Ghoti, you said:

Over the last couple of years concern has been growing that many of the people who are supported in their own homes are suffering because they become isolated and depressed. This might suggest that there'll be a policy swing back to encouraging the elderly to move into places where contact with other people is easier.

And some people will be way more depressed in a nursing home than enjoying their own company.
I'm quite sure most of the reason my father took his own life was his absolute misery in being forced to close association with people with whom he had nothing in common, in a nursing home.
He was never gregarious, preferred to be alone with a pile of books, intolerant of chit chat. For him to be told he had to join in playing Bingo and other such breathtakingly boring activities amongst a group of people who, sadly, were mostly demented to some degree, was torture.
There is also in some of these places a strong tendency to infantilise old people just because they are physically frail. Just because someone needs support physically does not mean they have suddenly had their intellectual capacity reduced to that of a three year old.

Hopefully some government will care enough to provide choices for the very old in terms of how they receive any care they need.

 

[ghotib]

I sometimes think that people's needs get more diverse as they get older, which is a nightmare for government policy.

Julia I'm so sorry your father's last years were so unhappy. That must be a hard memory to live with, and it must colour your feelings about aged care of all kinds. FWIW, nursing homes today are not - or at least not all - like the homes of 30 years ago, which is one reason for the weasel term "aged care facility". There's lot more recognition of different needs and personalities than there was when I visited my grandmother way back when. The infantalising thing can be hard for staff to avoid if it comes from dealing with dementia residents, same as a tendency to shout at residents with normal hearing can be hard for staff to overcome, but good places and good people will do it if they're reminded often enough - or so my Mama smugly informs me

We feel very lucky that Mum's had 20 contented years in a retirement village and been able to move, at a time of her own choosing, to a nursing home that suits her very well. Part of that is that there's been enough money available. Another part is that the right places were available. Another is that the family has always been involved and in agreement about what need doing and how to go about it. It'd be a lot harder if any of those pieces were missing.

But this recent exercise leaves me feeling very uncertain about my own future. There's a lot about the aged care system that seems to be very good, but its complexity is daunting even to the relatively youthful. The growth of large, for-profit organisations whose business is looking after increasingly vulnerable people and whose greatest cost is staff looks like a recipe for malpractice.

The best, though impractical, solution I've been able to dream up is to require that everyone who makes money from organisations that run residential facilities for older people work at least 4 hours a week with the residents. That would discourage tax-driven investors, might generate more intelligent ways of controlling costs than paying a bare minimum to front-line staff, and could encourage a bit of cross-generational learning.

Tough subject. Thanks to basilio for the reference to that book, and to docK for the thread.

 

[Julia]

FWIW, nursing homes today are not - or at least not all - like the homes of 30 years ago,

My father only died about 6 years ago.
Had he been able to receive adequate care in his own home I'm quite sure he'd be alive today. And would have been able to, even with his physical problem, still enjoy his fruit trees, the tame lizards in his garden, and most of all, his solitude.

 

[Calliope]

One of the biggest obstacles to independent living for the elderly is stroke. I have a sister-in-law who has been in a nursing home for 15 years. When you are hospitalised after a stroke the decisions and plans for your future are taken out of your hands. A little research on how to avoid a stroke turns up conflicting results.e.g. Foods and medication which may be good for your heart and circulatory system may be a nono for the brain.

Apparently the best way to avoid strokes is to choose the right ancestors.

For many of us, aged care facilities for prolonging life past your use-by date are an anathema, and plans are made to depart this life under our own terms.

However "The best-laid schemes of mice and men gang aft agley". My sure-fire system could be undone by a stroke.

 

[Julia]

Risk of stroke can at least be somewhat reduced by sensible preventative measures.

It doesn't bode well for the future when we have primary school children being treated for hypertension and diabetes because they are obese. Not to mention the reality that more than two thirds of Australians are now overweight/obese, hugely increasing their risk of stroke through diabetic and hypertensive complications.

 

[DocK]

Having started this thread two years ago and being pleased that I had an elderly mother who was fine on her own, I sadly now am in the process of arranging residential aged care for her. It has been suggested to her family that engaging an aged care broker might see a vacancy appear sooner than simply lodging an application directly. I have already done the required paperwork and received Centrelink's income and assets assessment. An ACAT assessment has been done. We've looked at several places and there are really only one or two that we're interested in, so I'm wondering if a broker would be of much value to us? When I put this question to a couple of brokers the response I got was along the lines that a vacancy might be obtained faster by them due to their contacts and the fact that aged care facilities give preference to brokers due to their repeat business. Seems almost like extortion, but if it will result in a shorter wait then I'm prepared to pay. Does anyone have experience in this area??

 

[cynic]

Having started this thread two years ago and being pleased that I had an elderly mother who was fine on her own, I sadly now am in the process of arranging residential aged care for her. It has been suggested to her family that engaging an aged care broker might see a vacancy appear sooner than simply lodging an application directly. I have already done the required paperwork and received Centrelink's income and assets assessment. An ACAT assessment has been done. We've looked at several places and there are really only one or two that we're interested in, so I'm wondering if a broker would be of much value to us? When I put this question to a couple of brokers the response I got was along the lines that a vacancy might be obtained faster by them due to their contacts and the fact that aged care facilities give preference to brokers due to their repeat business. Seems almost like extortion, but if it will result in a shorter wait then I'm prepared to pay. Does anyone have experience in this area??

I consider myself fortunate in not having been faced with this regrettable situation.

Like yourself, I would not automatically take the word of any broker (given that their financial motivations may compromise the impartiality of their advice).

Have you directed this question to the care facilities that you're interested in?

They just might be able to confirm or refute the claims of the brokers.