Elderly Aussies’ Angst: Australia’s Retirement Racket

Its slick marketing promises a safe and sound place to live yet retirement village operator Aveo is making a fortune by ripping off Australians through complex contracts and eye-watering exit fees.

With 89 retirement villages around the country, which house more than 13,000 retirees, Aveo is one of the biggest retirement village operators in the country. And it makes a lot of money churning residents out of their villages.

The price of Freedom

Its slick marketing promises a safe and sound place to live yet retirement village operator Aveo is making a fortune by ripping off Australians through complex contracts and eye-watering exit fees.

Geoff Richards quietly closed the front door of his unit for the last time. The legal letters had been signed, non-disparagement clauses agreed, and the retirement village operator Aveo was about to have its day.

Slowly walking down the path with his dog, Tosh, the crumpled 80-year-old glanced back one last time.

It was August 2016 and it was the day that Aveo won.

Richards had moved into the retirement village almost six years earlier in December 2010 with Harry Nash, his partner of 55 years. They were in their late 70s and had been seduced by the glossy brochures and promises of low maintenance that come with living in a retirement village.

But things started to unravel when Harry lost his battle with cancer in May 2014. Within weeks of burying him, Geoff received a letter from Aveo telling him he had no right to live in the village, despite being the sole beneficiary of Harry’s estate, including the unit.

Geoff received a letter from Aveo

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lost his battle with cancer

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“If there’s any way that can more quickly separate a person in a retirement village from their money, I don’t know it.”

“Imagine if a husband and wife,” Richards adds, “and one of those died and was the only name on the title. Would they throw out the other surviving partner?”

A joint Fairfax Media-Four Corners investigation into the ASX-listed retirement village juggernaut Aveo can reveal that Richards’ eviction helped them achieve their overall stated business strategy to “turn over” or churn a certain number of residents a year for profit.

Fairfax Media-Four Corners has spoken to current and former residents, their children, lawyers, former Aveo staff and lobby groups and has found some questionable business practices at Aveo, including safety issues, misleading marketing and advertising and property sales.

But the company’s biggest driver of profit – and behaviour – is exit fees.

With 89 retirement villages around the country, which house more than 13,000 retirees, Aveo is one of the biggest retirement village operators in the country. And it makes a lot of money churning residents out of their villages.

[After a series of economic analysis charts, the narrative continues]

Brutal and booming

It is a brutal business model that is becoming more honed with each new contract.

Under Aveo’s Freedom Aged Care business, which it started rolling out in 2016, the exit fee reaches a maximum of 40 per cent after two years with 50 per cent share of any capital gain going to Aveo and the resident taking the hit on any capital loss. If a resident moves out after a year they are charged 25 per cent, moving to 40 per cent after two years. The resident shares 50 per cent of the refurbishment and reinstatement costs.

Aveo bought the Freedom Aged Care business in February 2016 for $215 million as part of a new plan to expand its business from retirement villages to include higher care centres. The business model is to provide supported care right up to palliative care level.

It is part of a bigger plan to tap into a deregulation of the sector that came about in February this year, allowing the elderly to direct the government funding they receive for low-care assistance to large service providers, like Aveo’s Freedom Aged Care.

According to the company’s executive ranks, both the new Freedom contracts and the Aveo Way contracts deliver major benefits to Aveo’s financial accounts.

“In financial terms, there’s a very significant value uplift over the medium term for the rollout of both the Aveo Way and Freedom,” Aveo’s chief executive told analysts on a conference call in August 2016.

Given the average age of its residents is 82.8 years old, it is not hard to see why Aveo can roll out the contracts quickly and no doubt lift the turnover of units – the older the profile of residents the less time they are likely to stay.

Tim Kyng, an actuary and senior lecturer at Macquarie University in the department of applied finance and actuarial studies, was given a research grant to build a calculator to help people understand the true cost of living in a retirement village as well as compare different retirement village contracts against each other.

He was inspired after his mother became interested in moving into a retirement village.

“After taking my mother around to a few villages and different operators and then looking at the contracts I realised it was a cleverly disguised rip-off.”

“You go to the retirement village” says Kyng, “and talk to the sales person and they give you all these glossy brochures and spend several hours trying to talk you into buying an apartment or buying the right to live in the apartment and it’s really difficult to get them to actually give you the financial details of how the contract works.”

He said exit fees vary from village to village, and the different combinations of entry fee, maintenance fees and exit fees make it difficult to figure out which retirement village deal is the best.

“Our calculator aims to calculate a ‘comparison rent’, like a comparison interest rate for home loans, so that each combination of the fees and fee types can be equated to a rent-per-month payable over the new resident’s expected term of residence,” Kyng says.

Kyng agrees to calculate the cost, for this story, of an 82-year-old woman moving into an Aveo retirement village using actual figures from a Freedom contract, assuming monthly maintenance fees of $1600 and an exit fee of 40 per cent after two years. The result was astounding: if the woman either died or moved out after two years, she would have paid the equivalent rent of $13,300 a month, or more than $3000 a week for the privilege of living in the village.

For that kind of money you could rent a five-bedroom house with a pool in the ritzy Sydney suburb of Bellevue Hill or a four-bedroom mansion (also with a pool) in Melbourne’s Toorak, according to properties listed for rent on domain.com.au in June.

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