The recent Four Corners program on retirement villages in general, and Aveo in particular, scared a lot of people but in typical Four Corners fashion told only part of the story.

The principal of Aged Care Gurus, Rachel Lane, says – that talk about “protecting senior Australians” by “abolishing Deferred Management Fees” is likely to cause a lot more harm than good.

Rachel says that it’s important to understand what the Deferred Management Fee is before we start calling for it to be abolished. The Deferred Management Fee is essentially the Retirement Village Operators profit. They are not allowed to profit from the ongoing service charges and they choose to keep their upfront prices low so that it is attractive to people to buy, so basically the Deferred Management Fee is compensation for the low purchase price and running the village at cost.

If the government moved to abolish the DMF, thousands of people – including my grandmother who moved to a Retirement Village almost 7 years ago – would be unable to afford it. I would go as far as to say that prices could double overnight.

She argues that the Deferred Management Fee is a vital ingredient in providing affordable housing. “There are some villages that charge a Deferred Management Fee of 100% – which some people find shocking – but percentages are not relevant. 100% OF WHAT? Compared with say 30% or 40% OF WHAT? 100% of $100,000 is cheaper than 30% or 40% of $450,000 .. and if someone only has $100,000 to spend then $450,000 is completely unaffordable.

The problem is that people shouldn’t be forced to buy under an affordable housing model. “Senior Australian’s need choice, they don’t need “protection” from Deferred Management Fees. Plenty of seniors can afford to pay the “real price” of these retirement village units upfront – if the retirement villages would let them.

“A Parliamentary Inquiry into the Seniors Housing Sector in Victoria ran for more than 12 months last year and as a result 15 recommendations were made to Parliament including that Retirement Villages will need to give residents the choice of purchasing a unit with or without a DMF.

People who are downsizing from even modest homes in Melbourne and Sydney are often netting more than $1m, they don’t need affordable housing. In fact, when you add to the Deferred Management Fee the loss in pension that results from these artificially low prices I would argue that it’s not affordable housing, it’s just cheap.”

I agree that the system is incredibly complex, as is the documentation involved. This is why it is critical that anybody considering the move to a retirement village or an aged care facility take the time to research the market, and seek advice. It would also be worthwhile reading our book Aged care Who Cares? which is available from my website. If you need a recommendation for an adviser who specialises in this space just email me.