Need to know
- Retirement village residents in WA and other states have previously had to wait years to receive their exit entitlements
- Exit entitlements are often the only asset the retiree has, and are often needed to fund alternative independent living or aged care
- Despite the reforms, complex contracts and undisclosed costs continue to burden village residents and advocates say developers and operators hold unfair powers
The Western Australian government recently announced reforms to the retirement village sector that highlight just how long many departing residents have had to wait to receive the money owed to them by village operators.
It's a delay that can and has brought about serious hardship for former residents in WA and other states, since the deferred exit entitlements often constitute most of the money the retirees have to their names.
The reforms come on the back of an earlier investigation by WA Consumer Protection into financial chicanery across the board in the sector, but they come too late for former WA retirement village residents Bill and Mary*.
They left their village after six-and-a-half years due to what Bill calls "incompetent and unscrupulous retirement village management".
The reforms come on the back of an earlier investigation by WA Consumer Protection into financial chicanery across the board
Their story is typical of many retirement village residents around the country. They sold their home to come up with the required $420,000 ingoing loan to secure a unit in a village under a 'lease for life' arrangement.
According to Bill, the big upfront payment didn't get them much. And when the couple received their exit entitlement after six months, it had been whittled down by various exit fees.
Life savings at risk
The sums at stake are especially large if they're held up by the industry's controversial ingoing loan (or ingoing contribution) system, in which residents relinquish hundreds of thousands of dollars to village operators in order to secure a unit.
The retirement village operator holds on to this capital, basically an interest-free loan, until the resident departs, then eventually returns the money minus various exit fees – and often minus any investment income the money would have generated.
At the moment, it is all too often taking operators several years to refund what can be former residents' entire life savings. Under the proposed new rules, WA retirement village operators would have to hand over exit entitlements to former residents within a year.
Some residents or their estates were waiting as long as three or four years before their payments were receivedWA Consumer Protection director of policy and legislation Penny Lipscombe
The reforms come in the wake of a steady stream of complaints to WA Consumer Protection in recent years about delayed payments and other retirement village issues. In 2020–21 and 2021–22, the agency received 273 enquiries and 81 complaints about the sector.
"A primary impetus for this reform was that some residents or their estates were waiting as long as three or four years before their payments were received," Consumer Protection's director of legislation and policy Penny Lipscombe tells CHOICE.
Retirement village contracts are often long, opaque and all but incomprehensible for many retirees.
Delays in urgently-needed payments
When the proposed reforms were announced in August this year, WA commerce minister Roger Cook acknowledged that the change was a long time coming.
"We understand the stress that former retirement village residents have experienced by waiting for their exit entitlements for an extended period, especially when the payments are urgently needed to fund alternative independent living or aged care," says Cook. "We hope these proposed changes will avoid those unfortunate situations."
The new reimbursement regime would also require village operators to cover a departing resident's aged care costs, if requested, during the year-long waiting period. (The costs would be deducted from the exit entitlement when it's finally paid.)
Former residents given no alternatives
For Bill and Mary, the delays and additional costs have meant a significant reduction in the amount the couple received once they got their entitlement, but they felt they had little choice but to accept what was offered.
The six months it took for the couple to receive payment is well within the proposed new timeframe, but Bill believes the village operator could have sold their former unit much sooner.
Sometimes the huge amounts payable can catch the residents or their families by surpriseThen acting commissioner for WA Consumer Protection David Hillyard
"The market was gangbusters when we left and we struggled to procure our new home," Bill says. "Houses sold in a few weeks. It took them six months to settle ours."
Bill and Mary had also made numerous improvements over the years, but according to Bill, when they moved out in early 2022, the village operator hit them with a $14,000 refurbishment bill. The couple eventually negotiated this down to $6000.
"As we had moved into a dirty, empty shell in 2015, we had to make many additions and improvements to make a comfortable home," Bill says.
"We poured in about $50,000 to get the home neat and make improvements for more comfort," he adds. "The lease said that refurbishment paid for by us shall be the cost to return the house to the condition we received it in. So we should have had zero refurbishment costs."
All up, Bill says the village operator charged $21,673 more than they should have in exit costs, but the couple ultimately "rolled over".
In the end, Bill and Mary got back $320,000 of the $420,000 they originally handed over to the village operator. Still, they were glad to be out.
"It hurt, but the gain in our mental and physical health was worth it," Bill says.
Delayed exit entitlements and steep exit costs aren't the only way retirement village operators help themselves to residents' nest eggs.
When they moved out ... the village operator hit them with a $14,000 refurbishment bill. The couple eventually negotiated this down to $6000
In 2017, WA Consumer Protection launched an investigation focusing on potentially unfair terms in retirement village contracts, especially when it comes to fees.
As Acting Commissioner for Consumer Protection David Hillyard said at the time, "Residents may not be fully aware of the fees and charges which are both ongoing and also payable when they vacate the village. Sometimes the huge amounts payable can catch the residents or their families by surprise."
The investigation also focused on the 'deferred management fee' that many departing residents must pay.
In Bill and Mary's case, that fee was $71,050, taking a big chunk out of the exit entitlement they eventually received.
In addition to delays in the payment of exit entitlements, former residents are often hit with an array of unexpected exit costs.
Unfair hikes in ongoing fees
Bill and Mary also paid monthly fees of $240, which Bill calls "probably the cheapest in the state", and continued to pay them for three months after they moved out. (In 2014, the WA Retirement Villages Act was amended to limit continuing fees to three months going forward, down from six months prior to the change.)
Current retirement village resident Liz* wasn't so lucky. She was outraged when the monthly fees in her village jumped from $340 to $860 a month, after a newly formed village board held a special 'budget information' meeting.
Residents are trapped by misguided advertising and unconscionable conduct, which isn't exposed until you take up residenceRetirement village resident 'Liz'
According to Liz, board members in her village come and go and raise fees indiscriminately, leaving residents financially strapped. She calls the actions of village management a "total abuse of power", something she didn't see coming.
"Residents are trapped by misguided advertising and unconscionable conduct, which isn't exposed until you take up residence," Liz says.
The costs to residents don't add up
President of the WA Retirement Village Residents Association (WARVRA), Ron Chamberlain, says village operators often engage in dubious tactics to separate residents from their money.
Bill's story about getting hit with unfair refurbishment costs is common, Chamberlain says.
"There are groups of operators who expect the residents to pay out on refurbishing the villa. And that causes a lot of people quite a good deal of stress," he says.
I often see perfectly good kitchens thrown into a skip bin, and then people are asked to pay $40,000 to upgradeWA Retirement Village Residents Association president Ron Chamberlain
"They are told that the villa will sell better if they upgrade the kitchen and the bathroom, and that they must do this. Well, some of these things cost $70,000, $80,000, sometimes $90,000, and the residents get very little of that money back."
"I often see perfectly good kitchens thrown into a skip bin, and then people are asked to pay $40,000 to upgrade," Chamberlain says. "That's the operator seeking other ways to extract money from people. We're definitely against that. We believe that's absolutely wrong."
In one case, a resident paid $275,000 to move into a village 10 years ago, and when he died the unit was put on the market for $315,000. The surviving members of his family were asked to pay $80,000 for refurbishments and $10,000 for advertising.
"The arithmetic just doesn't work when you do that sort of thing," Chamberlain says. "It's ridiculous."
Complex contracts put retirees at a disadvantage
Chief policy officer for the WA chapter of the Council on the Ageing (COTA), Chris Jeffery, tells CHOICE that a big part of the problem with delayed exit entitlements and unexpected costs is complex contracts that few incoming residents can comprehend.
People who are contemplating moving into a retirement village probably need an astute family member or a lawyer to help them navigate these contractsCOTA chief policy officer Chris Jeffery
"I think, unfortunately, that we've gotten to the position now where people who are contemplating moving into a retirement village probably need an astute family member or a lawyer to help them navigate these contracts," Jeffrey says. "But that can cost a fortune. For people who don't have much money, it's a real issue."
Residents left disadvantaged and confused
One Victorian retirement village resident and longtime critic of the industry, Charles Adams, has repeatedly made the point that the ingoing loan system is inherently unfair to residents. He says the system is skewed in favour of village developers and operators.
Adams believes a straightforward strata title arrangement, which would give residents actual ownership of their unit, should be the norm. As it stands, confusion reigns.
"The present retirement village milieu is so complex that the only people who presently understand it are the developer operators," Adams says.
Operators get two-year grace period
No date has been set for the implementation of the proposed WA reforms yet, but village operators will have two years to comply after they come into effect. Developers and operators have complained that the change would lead to insolvency for villages, but both WA Consumer Protection's Penny Lipscombe and WARVRA president Ron Chamberlain disagree.
The present retirement village milieu is so complex that the only people who presently understand it are the developer operatorsResidents' advocate Charles Adams
"There is no evidence of this occurring in other jurisdictions where similar policies are already in place," Lipscombe says.
WARVRA had lobbied for a three-month time limit on the payment of exit entitlements, but Chamberlain says he welcomes the reform nonetheless.
"Operators are complaining that it's going to ruin their business and so on, but we don't believe it will. We believe it'll be better for the industry," he says
*Names have been changed.
Stock images: Getty, unless otherwise stated.