Ageing influences our housing choices. Older Australians often don’t seek help on the housing options available to them, although choosing the right housing decision for them can have a significant effect on their physical, mental and emotional health and wellbeing. Financial planners who engage with older clients to discuss their housing requirements and care options in retirement, may support their clients to make better housing decisions.

Opportunity for advice on housing and care options in retirement

Research by the Productivity Commission indicates that older Australians are reluctant to engage a financial or other specialist adviser or even speak to family members to inform them of their housing decisions and aged care costs¹.

Some financial planners give advice to elderly clients or their enduring power of attorney, in relation to entry into residential aged care. However, older persons are trending away from residential aged care and increasingly view it as an end-of-life option¹. As a result, the length of stay in aged care is decreasing to just under three years².

Financial planners are well-placed to understand a client’s health, lifestyle, family and financial circumstances – factors that affect their housing decisions. An opportunity exists for financial planners to discuss the spectrum of housing and care options with clients in the early stages of retirement and by doing so, add value to their advice proposition.

Spectrum of choices

Housing and care needs of older people change as they age. The stages, as defined by the Productivity Commission, can be categorised as ‘active’, ‘passive’ and ‘frail’ (Figure 2).

Source: Productivity Commission, Housing Decisions of Older Australians.

Aged care options

The Commonwealth Government’s subsidised aged care services include:

• Commonwealth Home Support Programme (CHSP): helping older Australians access entry-level support to live independently and safely at home;
• Home Care Packages: enable eligible older people to receive additional home care services they require, to remain in the home longer; and
• Residential care: provides accommodation and full-time care for those who have greater care needs and enter an aged care facility, on either a temporary (respite) or permanent basis.

Chart 1: Aged care in Australia 2018-19²

	Home support (CHSP)	Home Care Packages	Residential care
Number of consumers	840,984	133,439	242,612
Commonwealth funding	$2.6b	$2.5b	$13.0b
Consumer contribution	$252m	$107m	$4.8b
Average subsidy per consumer*	$3,092	$18,735	$53,583
Average age	80	82.4	84.8

 

* Commonwealth funding divided by number of consumers. Note the Government subsidy for Home Care Packages varies according to the package level (1-4).

Home care services provided through CHSP and Home Care Packages require much less public funding compared to residential care, despite a much higher number of consumers receiving home care services. The lower public cost of funding home care and the preference of older Australians to age in their own homes, is driving Government policy to increase the accessibility of home care. Access to CHSP and Home Care Packages are not restricted to only Australian citizens or permanent residents.

Commonwealth Home Support Programme (CHSP)

CHSP provides entry-level support for people aged 65 or over (50 years and over for Aboriginal and Torres Strait Islander people) to help them live independently in their home. Services provided under CHSP include occasional domestic assistance and personal care, and home maintenance and modification.

Home care packages

Home care packages are provided by the Australian Government, to support older people with more complex needs to help them live independently in their homes. Care and support is provided through home care services, which can include meal preparation, personal care, mobility support and clinical care, such as nursing.

Housing options

The Productivity Commission’s research paper on the Housing Decisions of Older Australians compared the key features of housing options as set out in Chart 2.

Chart 2: Key features of housing options for older Australians¹

* In some dwellings, the body corporate must also agree to modifications. 

Homeowners, retirement villages and mobile home communities are considered below.

Considerations for home owners

The majority of older Australians prefer to live independently in their own home. The Productivity Commission survey undertaken in 2015 found that 83 per cent of people aged 60 years or more, preferred to live in their own home¹.

Home ownership provides the greatest security of tenure and the greatest freedom to customise the accommodation to their needs¹. The home may be customised by modifying the existing home, constructing a new age-friendly home or granny flat.

Drawing on home equity

Older home owners hold a large share of their wealth in their homes and typically access home equity as a last resort¹. The Productivity Commission survey found that the majority of older Australians acknowledge that their current home will not play a role in funding their retirement or have never thought of their home in that way¹.

Older home owners tend to be asset rich and income poor. Precautionary saving in the form of the home, may mean that those who continue to live in their home are over-saving, when releasing some equity could increase retirement income.

Options for drawing home equity are:

• Downsizing;
• Equity release products; and
• Pension Loans Scheme.

Downsizing

Downsizing tends to occur relatively early in retirement. Over 85 per cent of older Australians who downsize do so before they turn 70¹.

Government policy provides incentives for Australians aged 65 or over to downsize. Downsizer contributions are intended to free up housing for young people and encourage older Australians to access the equity in their home for retirement purposes. In the first year, after the introduction of the measure on 1 July 2018, 4,246 older Australians made a total of $1 billion in downsizer contributions³.

Equity release products

The market for equity release products is very small. Reverse mortgages make up the vast majority of the market. Consumer demand for reverse mortgages may be adversely impacted by older Australians not viewing their home as a source of funding in retirement, the complexity of products and the Centrelink assessment of home equity release products.

For Centrelink purposes, the first $40,000 of an unspent home equity conversion loan is an exempt asset for 90 days. If, after 90 days, a person has not spent the released proceeds, the amount is an assessable asset. While the amount is held in a financial investment, such as a bank account, it is subject to deeming.

Pension Loans Scheme

The Pension Loans Scheme (PLS) enables older Australians to generate additional retirement income by accessing the equity in their real estate.

To be eligible for the PLS:

• the person must be of Age Pension age (or the partner of someone who is);
• qualify for Age Pension, Disability Support Pension or Carer Payment but they do not have to receive an income support payment. For example, self-funded retirees must qualify for Age Pension but do not need to satisfy the pension income and assets test.
• have adequate insurance over the property.

Since 1 July 2019, age pensioners who access the PLS can top-up their pension to 150 per cent of the maximum fortnightly rate of Age Pension. Self-funded retirees can get 150 per cent of the maximum fortnightly rate of Age Pension using the PLS. Interest at the rate of 4.5 per cent (1 January 2020 to present) accrues fortnightly until the debt is repaid, the real estate sold or the PLS recipient dies. The debt is secured by a charge over the property, typically by the Commonwealth Government lodging a caveat.

Retirement villages

Retirement villages are increasing in popularity. Retirement villages are purpose built, low maintenance homes for older people, with support in place if needed. Residents live in independent units or serviced apartments in which they are provided with meals, cleaning and other services. Retirement villages are regulated by state or territory legislation.

Retirement villages appeal to people who wish to live independently, although want to enjoy the social environment and support of a village community. Retirement villages are lifestyle focused and offer shared facilities, social activities and less home maintenance. If a retirement village is co-located with an aged care facility, they operate separately. Clients should be aware that there is no guarantee that they will be offered a place in an aged care facility co-located with a retirement village.

Costs

Retirement villages usually cost less than the average price of a home in the same area. Home owners can free up money for retirement by moving into a retirement village, but the additional funds may impact their Age Pension. To preserve their pension rate, it may be possible to negotiate a higher entry contribution and lower deferred management fee when planning the entry to and exit from a retirement village.

There are a number of costs associated with living in a retirement village. Costs are agreed to before occupying a spot in a retirement village and are set out in the contract. Costs include:

• Entry contribution: this can vary depending on factors including location, facilities, age and condition of the unit, and other fees to be paid.
• Service charge: for general maintenance of facilities and common areas, staff, council rates, water for common areas, emergency call system, insurances (workers’ compensation and public liability, contents insurance for common areas, village building insurance).
• Deferred payment fee (exit fee or deferred management fee). Commonly a percentage of the entry payment or resale/re-let price that an incoming resident pays.
• Retirement village operator’s entitlement to a share of any capital gain. Commonly 50 per cent of any capital gain is retained by the operator and 50 per cent by the resident, although this can vary. The entry contribution and deferred management fee can also alter the share of capital gain the resident is entitled to.

Example

A resident sells their unit in a retirement village. Key metrics are:

• Entry contribution: $400,000
• Length of stay: 10 years
• Deferred payment fee: 3 per cent per year of sale price (capped at 30 per cent after 10 years)
• Sale price: $550,000
• Outgoing resident entitled to 50 per cent of capital gain

The return to the resident is calculated as:

Deferred payment fee calculated on sale price: 30% x $550,000 = $165,000

Capital gain: $150,000

Resident entitled to 50 per cent of capital gain: $75,000

Return to resident: $400,000 + $75,000 CG – $165,000 = $310,000

Most age pensioners living in retirement villages aren’t eligible for Rent Assistance, because their entry contribution exceeds the extra allowable amount i.e. the difference between the pension asset test thresholds for home owners and non-home owners (currently $214,500). Centrelink’s different approach to assessing retirement villages and lifestyle parks produces inequitable outcomes between residents of these similar housing options.

Rights and obligations of people residing in retirement villages are governed by the contract signed when entering the village. The type of tenure (e.g. lease, strata title, licence, rental agreement, company title) may vary and it is important for clients to seek legal advice from a solicitor experienced with retirement village contracts before signing one.

Care options

There are no restrictions on the delivery of home care (CHSP and Home Care Packages) in retirement villages. However, as the operator of the retirement village is often responsible for maintaining parts of the dwellings (as well as the common areas), home maintenance and modification services, which usually fall under CHSP or Home Care Packages, these home care options are not provided to dwellings within retirement villages. Maintenance of fixtures and fittings in a village home (e.g. leaky pipe or bathroom tap) are usually covered by service charges.

Mobile home communities and lifestyle parks

Lifestyle parks can be purpose built or mixed purpose and are regulated under state or territory residential parks or residential tenancy legislation. Security of tenure is relatively low compared to retirement villages. Depending on the state or territory, residents can be evicted without grounds if given sufficient notice. However, most states and territories have legislated to provide greater security of tenure to long-term owners and residents can only be evicted on specified grounds.

These housing options consists of:

• lifestyle parks;
• residential parks;
• manufactured home estates; and
• caravan parks.

Residents usually own their home and lease the land on which it sits. Lifestyle parks offer residents a range of benefits, such as:

• community environment;
• shared facilities;
• social activities and services;
• physical security and safety of a gated community with on-site staff; and
• no maintenance (e.g. lawn mowing and maintenance of shared facilities).

Costs

Lifestyle parks can be a more affordable housing option for retirees. Compared to retirement villages, there are no exit fees or stamp duty payable. Unlike most age pensioners living in retirement villages who aren’t entitled to Rent Assistance (because their entry contribution exceeds the extra allowable amount), age pensioners living in lifestyle parks who do not own the land and pay site fees, may be entitled to Rent Assistance.

<sub>Granny flat arrangements

Granny flat arrangements are typically an agreement between an older person and a family member, by which the older person transfers the title of their home or gives assets, in exchange for a right to accommodation for life in the family member’s home.

Granny flat arrangements as a housing option may satisfy an older person’s:

• preference for ageing at home;
• desire to preserve their family home or assets for succeeding generations;
• social needs for ongoing engagement and participation in family life;
• preference to be cared for by family; and
• desire to preserve social security income support.

On 5 October 2020, the Australian Government announced a new CGT exemption for formal, written granny flat arrangements, from 1 July 2021.

Under existing tax law, a written, formal granny flat arrangement results in a CGT liability for the family member who has created a legally enforceable right in the older person. The potentially significant CGT liability acts as an impediment to older people establishing written, formal granny flat arrangements.

Instead older people may choose informal, unwritten granny flat arrangements which do not serve to protect their interests if, for example, family relationships break down, the family member needs to move or the older person needs to move into aged care. If things go wrong, the older person could be left homeless, having given up the proceeds of their home.

Conclusion

A significant majority of older Australians prefer to live in their own home as they age, with Government subsidised home care services supporting these older Australians to live independently for as long as possible. Retirement villages and lifestyle parks also appeal to retirees for various lifestyle reasons.

Engaging with clients about their housing and care options in the early stages of retirement supports them to make more informed housing decisions. Financial planners who provide a housing assessment to clients, offer a more wholistic approach to financial planning.

Claudine Siou, Senior Technical Services Manager, IOOF TechConnect

Footnotes

1. Productivity Commission, Housing decisions of Older Australians.
2. Aged Care Financing Authority, Eighth report on the Funding and Financing of the Aged Care Industry, July 2020.
3. Michael Sukkar, Minister for Housing and Assistant Treasurer, Media release 28 June 2019.

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QUESTIONS

To answer the following questions, go to the Learn tab at moneyandlife.com.au/professionals

1. Older people may be eligible for the Commonwealth Home Support Programme or Home Care Package in which housing options?

1. Home owners, retirement villages, lifestyle parks, private rental, social housing, aged care facility.
2. Home owners, private rental, retirement villages, lifestyle parks, aged care facility.
3. Home owners, private rental, social housing, retirement villages, lifestyle parks, granny flats.
4. Home owners, private rental, respite care.

2. Sally (aged 75) and George (aged 78) are both age pensioners. They are considering their ongoing housing options. Which of the following options are they most likely to be eligible for Rental Assistance if they were to live in it?

1. Their own home.
2. A retirement village.
3. A lifestyle park.
4. A granny flat.

3. How are retirement villages regulated?

1. State or territory laws regulate retirement villages.
2. Commonwealth laws regulate retirement villages.
3. Retirement villages are governed by the contract.
4. Retirement villages have their own rules and regulations.

4. How are lifestyle parks regulated?

1. Lifestyle parks are not regulated.
2. Lifestyle parks are regulated under the same regulations as apply to caravan parks.
3. Lifestyle parks are regulated by state or territory laws that regulate lifestyle parks.
4. Lifestyle parks are regulated by state or territory laws that regulate lifestyle parks or residential tenancies.

5. Jenny, aged 68, is considering moving into a retirement village. She is attracted by the shared facilities, the community lifestyle, social activities and having to do less home maintenance. Jenny needs to consider that the retirement village costs include which of the following?

1. Entry fee and deferred management fee.
2. Entry fee, deferred management fee and service fee.
3. Entry contribution, deferred management fee, service fee and proportion of realised capital gain.
4. Entry contribution, service fee and selling fee.