A brief introduction to retirement villages
Choosing a lifestyle that fits your retirement needs and aspirations can feel exciting, life changing, baffling and empowering - all at the same time. In defining your retirement lifestyle, deciding where you want to settle is the key challenge. The community you choose to live in sets the foundation for achieving your personal retirement goals.
Thinking about selling your current home and moving to a new community can be daunting. Being well informed on the options that best meet your needs is the only way to alleviate your concerns, minimise risk and reach a decision that you and your family feel confident is the right one.
This article is a brief introduction to retirement villages in Australia and what you need to think about as you consider the opportunities available to you.
What is a Retirement Village?
Across Australia, each State or Territory has its own legal definition of what a retirement village is. For the purpose of this article, we will be focusing on Victoria’s retirement villages. According to the Consumer Affairs Victoria website, a retirement village is:
A community where:
- most residents are aged 55 years or over or are retired from full-time employment (or are spouses/partners of such people). Residents are provided with accommodation and services, other than services provided in a residential care or aged care facility, and
- at least one of the residents, as a contractual condition of entering the retirement village, paid an ingoing contribution that was not rent. It does not matter who made that payment, or whether it was a lump sum or by instalments.
You don’t have to be retired to make the move into a retirement village. In fact, moving into a retirement village before you transition from full-time or part-time employment is a great way to ease into your new community and reduce the angst of taking on several life changes all at once a few years down the track! Some residents of retirement villages never actually retire and continue work in a part-time or voluntary capacity because they want to.
What are the facilities in the village like?
Retirement villages offer retirement accommodation in villas, units, townhouses or apartments often designed around a communal hub of facilities and gardens. A retirement village that encourages a healthy social ambience will include a range of shared facilities such as a community centre or clubhouse, BBQ areas, sporting facilities such as a bowling green, swimming pool and gymnasium, library, community gardens, internet lounges, meeting rooms, lounge and dining rooms and parking for visitors. Village bars, health and beauty centres can also be part of the retirement village facilities. Some retirement villages also provide on-site social coordinators to develop and organise group activities, events and outings.
What level of in-house daily personal care and support services are available?
Depending on your personal circumstances, the level of in-house daily personal care and support services available in a retirement village may be a consideration. ‘Independent living’ provides the lowest level of personal care services where ‘assisted living’ or ‘serviced apartments’ provide a higher level of daily personal care services to meet mobility and health needs. Naturally, the level of care provided within a retirement village does have an influence on the demographics of the community. For example, an ‘independent living’ retirement village will often be a ‘relatively new to retirement’, active community with an equal mix of both men and women.
How is a Retirement Village different from other types of retirement accommodation?
A retirement village:
- is legally defined and governed by the Retirement Villages Act 1986 (Vic)
- promotes independent living
- generally provides minimal levels of in-house daily personal care and support services or flexible options for ‘fee for service’ if required.
The other types of retirement accommodation available are residential parks, rental villages and residential aged care such as hostels, nursing homes and other supported residential services. These are not retirement villages.
What is a Residential Park?
A Residential Park is a community where residents:
- buy a prefabricated building (such as a caravan or mobile home unit)
- rent the site that the accommodation sits on.
A retirement park can’t legally represent itself as a retirement village. Residents in a retirement park are not protected by the Retirement Villages Act 1986 (Vic). The law that applies for residents of a Residential Park is the Victorian Residential Tenancies Act 1997.
What is a Rental Village?
A Rental Village is a community where residents:
- rent the accommodation they live in under a tenancy agreement
- pay a fortnightly rental linked to their age pension and rent assistance. Usually 85 per cent of a resident’s age pension and 100 per cent of their rent assistance.
A rental village can’t legally represent itself as a retirement village. Residents of a Rental Village are not protected by the Retirement Villages Act 1986 (Vic). The law that applies for residents of a Rental Village is the Victorian Residential Tenancies Act 1997.
What is a Residential Care Facility?
A Residential Care Facility is a community that provides low level and / or high level aged care personal services and supports. Types of accommodation can include hostels, nursing homes and supported residential services.
Access to these types of facilities depends on an aged care assessment, in accordance with the Commonwealth Aged Care Act 1997.
What legislation governs Retirement Villages and protects you as a resident?
Every resident is protected by the Retirement Villages Act 1986 (Vic) if the community meets the legal definition of a Retirement Village. This applies whether you paid an ingoing contribution, or own or lease your unit.
The Retirement Villages Act 1986 (Vic) ensures that retirement village service and maintenance fees can’t increase beyond the Consumer Price Index (CPI) unless a majority of retirement village residents vote in favour of a proposed fee increase.
What are the financial considerations of buying into a retirement village?
When buying into a retirement village, your financial obligations fall into 3 categories - what you pay when you enter the retirement village, what you pay while you are living at the retirement village and what you pay when you leave the retirement village. It is important to understand that the type of contract you are entering into will influence the financial considerations. The contract types differ from village to village as discussed later in this article.
The first investment you should consider making is paying for the services of a good legal practitioner experienced in retirement accommodation. This would be a very wise move and one that can give you confidence that you are making a well informed decision.
What can you expect to pay when you enter a retirement village?
Waiting list fees
Some retirement villages may ask for a fee to join their waiting list for available accommodation. This fee may or may not be refundable based on certain conditions. It is best to ask for the conditions in writing and to make sure you keep a copy of the receipt.
Upfront payment securing your retirement accommodation
You will be asked for an upfront payment that will secure your right to live in the accommodation you are buying in to. The Retirement Villages Act 1986 (Vic) refers tothis payment as an ‘ingoing contribution’. Based on the type of contract you are entering in to, retirement villages in Victoria will describe this payment in varying ways – for example, an interest free loan, rental pre-payment, purchase price, premium or a refundable deposit. Some or all of the entry payment may be refunded when leaving the retirement village. In the case of an ingoing contribution that has been referred to as a loan, the loan is usually repaid to you once you leave the village. Also, upon departure, most retirement villages will pay you all or part of any capital gain achieved over your period of occupancy. The departure fee (refer below), projected market value and the estimated length of your stay will also need to be taken into consideration when calculating the overall financial outcome.
What can you expect to pay while you live in a retirement village?
Service and maintenance fees
As a home owner, paying for services to your home and maintenance of your property is always an ongoing and significant part of your financial budget planning. When you move into a retirement village, you will continue to pay regular payments for services and maintenance of your home and surrounds. A clear benefit of choosing retirement village living is that the number of services available to you suddenly increase, such as having an increased sense of safety and security, an emergency call service, access to a swimming pool, bowling green, library and other clubhouse facilities.
Service and maintenance fees are sometimes referred to as a general services or recurrent charge. These fees may go towards covering some or all of the following:
- the cost of running and maintaining the retirement village facilities, services and common areas
- higher levels of service if available, for example 24 hour emergency support or personal care services
- building insurances, water rates
Bills metered individually for each villa including Council rates, gas, telephone and electricity bills are sent directly to residents for payment.
Retirement villages often negotiate purchase of some of the services mentioned above in bulk. This means there can be some cost savings to residents.
If a retirement village offers freehold or strata titles of property, residents may have to contribute owners' corporation levies or body corporate levies as well as service and maintenance fees.
Service and maintenance fees have to be provided by retirement villages on a cost recovery basis. Legislation contains protections and controls to ensure residents are kept informed about the service and maintenance costs and any changes to these. In Victoria, as with other states, increases in the service and maintenance fees mostly can’t increase above the general cost of living or the annual Consumer Price Index (CPI). However, if a majority of residents vote in favour of a proposed increase in fees, the fees could move above CPI.
Long term maintenance
A special levy can be asked of residents in exceptional circumstances. The Consumer Affairs Victoria website provides more information of when this may occur.
Some retirement villages may require payment of a long term maintenance fee. This is to cover the additional costs of maintaining communal facilities over an extended period of time where more than general maintenance is required. Make sure to enquire about any long term maintenance fees that may be applied.
Usual costs associated with purchasing property
Don’t forget to factor in all the usual costs associated with purchasing a property. Some examples of these are:
- Goods and Services Tax (GST)
- Stamp Duty
- Investing in a good legal advisor
- Refurbishment costs.
What can you expect to pay when you leave a retirement village?
Departure fees are the fees you pay when you leave the retirement village. These fees can be referred to as either exit fees, deferred management fees or departure payment. These fees are an important consideration when looking into the financial outcomes of moving into a retirement village in Victoria. The departure payment is often linked to the initial entry fee, the number of years that you have lived in the retirement village and the market value of the property at the time of departure. The way these fees are calculated is based on the contract type the retirement village is offering.
What are the legal considerations of buying into a retirement village?
It is not easy to compare retirement villages as like for like. There are a number of different legal structures on offer including:
- long term lease
- long term license
- strata title
- community title
- company title
- unit trust
- conventional lease
For this reason, a good legal counsel is invaluable in helping you understand the legal and financial considerations.
This is a decision that will define your retirement lifestyle. Visiting retirement villages to get a feel for the community you are considering moving into is the best way to start. It’s important for your wellbeing that where you choose to live, feels right for you.
Where can you get more information from?
The following independent organisations can provide you with further information on what you should consider in thinking about moving into a retirement village:
Book in to visit a retirement village earlier rather than later
You may be aspiring to a lifestyle in your later years that feels:
- safe, secure and convenient
- connected to a like-minded community
- like a solid home base to enjoy travelling from and coming back to.
It’s never too early to start looking at the retirement living options available to you. The best way to understand how a retirement village might meet your needs is to book in a time to go and visit one.