Community Retirement Villages – Innovative Finance

This is a continuation in the series of posts about a new  form of Community Retirement Villages.    It follows on from my introductory post on 9 September.    This post will focus on the most difficult question, which if how they can be financed in revenue and capital terms.

It is first with repeating some home truths, which successive Governments have failed to address :-

  • Increased longevity and improved health care have outpaced the Governments ability to pay for later life support for older people. Over the years an expectation has been created that all health care is free from the NHS — this is no longer the case.   Neither is it realistic to assume that social care will freely be available for all those who need it.
  • Older people themselves, not knowing they were going to live so  long in retirement, have not saved enough to pay for a good later life.   Except that many of them are home owners and have lived through a period of house price inflation, so now have resources locked up in their houses.
  • Until these two issues are faced up to by both Governments, who are afraid to be honest for fear of losing votes and by older people, who are hoping to hang on to a legacy, there will be no release of resources to address the problem.

INNOVATION

Innovative financial models are the key to opening up new opportunities in the retirement housing and care market.    Fluid use of housing capital assets and risk sharing to procure care-for-life reinsurance hold the answer.     They are ideas that have been widely used in the USA, but have only rarely been offered in the U.K. :-

  • down- sizing is the simplest option for releasing capital from your home, but it is only available if your home is of sufficient value.    Shared-ownership needs to be an option for those with lower value homes.
  • in both instances people may subsequently need to release more equity in their home to be able to fund care at a later stage.
  • Ideally, when purchasing a new retirement home you want also to know you have your life time care needs can be funded.  One option  is to pay a non-returnable premium to move in to a new apartment which offers a care-for-life  package.   In the USA this is often called a Continuing Care Community.

The broad concept is that you buy into a retirement community which offers you housing and care for the rest of your life in exchange for a one time payment.    The risks of how long you live and your future care needs are bourne by the retirement village operator.    There has to be a caveat that if your care needs, particularly in terms of mental health require specialist treatment, you may need to move to another home, but this will continue to be funded by the village operator.

This approach was tested nearly twenty years ago by Rowntree in New Earswick Retirement Village in York, but sadly, it was not replicated because of the perceived risk.    More recently The ExtraCare Charitable Trust launched a Care-for-life option on a limited basis, but again it has not been repeated.

It is an option that is completely different to the oughtright sale or even part purchase of properties.    For that reason it would need an open and transparent approach and very careful marketing.    It has the potential to give access to a Retirement Village at a price which is lower than the open market value of the accommodation, with no on going high service charges.     The other big benefit is that you do not have to worry  about the cost of your future care, as that is included in the initial entry price you pay.

After I have covered the other issue of Operational Management, I will bring together all the threads of my posts on Retirement Villages to try to point to a bold way forward.

 

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3 Responses to Community Retirement Villages – Innovative Finance

  1. davidwfreeman237 says:

    please continue, it is informative and most thought provoking.

  2. davidwfreeman237 says:

    Johnsmoney
    Personal observations by me!
    The models as discussed highlighted by the Rowntree Trust, The Extracare Charitable Trust and this if I have read correctly based on the American Continuing Care Community.
    With respect to care, accommodation, and general living cost one has to look forward to in a retirement period of non-earning period in life.
    AS highlighted my wife and I had to consider the assets we had accumulated, during our working life, in retirement our pensions, and savings income.
    AS said our main asset was the house, and the taxable pension cashed in ‘lump sum’, and for living our remaining pensionable income together with interest on any savings. Looking at the optional above in retirement housing, and the options were to:
    1 Downsize in accommodation and reduce future ongoing maintenance costs for heating, poll tax and decorating internal and external.
    2 The prospective future health and care charges
    3 Acknowledge the fact that if one was mentally ill, or became defined mentally ill as under the UK Mental Health Acts, then one may have to look at a different scenario: Here the UK and the USA differ, one country has an insurance based healthcare industry, and the other a national health system under pinning the private insurance industry.
    There is a problem here ideologically with how the UK Population has been cajoled into a belief that the National Health and social service will provide support throughout a working life and during retirement/pensionable age, and indeed the ‘facilities provided on an en mass basis, other than a one to one provision that a wealthy family may have had to or do provide for the mentally ill within their own kith and kin, it is an unpalatable and uncomfortable solution for the general public within the UK. We in the UK have sought the more social solution of patronage of a public health service supported by taxation (Originally Known as National Insurance and now just a general tax with a special name, but no known deposit box, or allocation account?). In the 20 th centaury the UK to help prior to The 1948 Tax scheme and National Insurance and National Health Service we relied on entrepreneurs like ‘Rowntree’ and ‘Salts’ to socially engineer solutions within their own communities, We had the large garden retreats I knew as a child through learning and visiting ‘Workhouses and Lunatic Asylums’ which did far more for the general population than the bland names suggest? It depends on one view point, and in reflection what help was there historically at or during those times for the individual.
    The American Dream Model for retirement
    Here I have to be careful, I am unaware of the American Lifestyle and social fabric of their communities.
    The sense of an upfront ‘Bond’ which is non-returnable, and covers all retirement and with it health issues, mental and physical, may depend on the good intentions of the founding fathers of the scheme? Here I wish them well, but I just wonder if like Leman’s Bank, and the problems of ‘Pyramid selling’ scenario, I ask where the ‘BUCK‘ stops, both in the animal and monetary sense.
    The asset originally traded is in bricks and Mortar, and its associated land values?? Is it not? A philanthropic donation may assist, but the founding fathers must keep a weather eye open for their original asset, and what they may promote as a dream for elderly living?
    In the UK
    We hanker after the freedom of the American dream, with a good dose of social engineering from society in general? It is not ideal, but do we have the means to change our original view point? That is the question for you as the reader, and those interested in a retirement lifestyle.
    A Model to consider
    Property and its values, are everyone’s main concern, they are tangible, and they provide necessary shelter. We have the rented section, the shared section and the leased/freehold section? Here if one follows the freehold section the asset is always in the gift of the purchasers for all on going costs and rewards upon termination or selling of the property.
    Lease holder, rent and shared ownership it is a joint risk between the purchaser and the landlord, by mutual agreements (Be they all slightly differ)
    Now renting provides no foreseeable problems other than ones foreseeable income can meet the needs of the charges levied by the landlord and society in taxation and general living.
    In the case of shared and lease agreements one may have to consider the social engineering and financial consequences of any decision made, such as the outlook of the retirement complex one may be buying into, or wish to belong too? It is a risk, but balanced, if both parties at its concept remain true to honour the agreements. One consideration is for the scheme (Landlord) to offer a fixed price of purchase, with a guaranteed of buy back at the time of termination of the property, at the price of purchase, with an ongoing charge (Monthly or weekly) controlled within the cost of pension (earnings rises), until termination, and health costs based on care within the social services of the UK NHS (National Health Service). It is all a calculated risk, and is dependent upon the integrity of the landlord and the tenant, and the social aspirations of the UK population at the voting booth? And any future taxation reviews. Poll tax or community tax is a devil in detail that one cannot avoid, but if one on a fixed income such as a pension can somehow alleviate and to some extent control one future outgoings that are known such as shelter, accommodation and the maintenance of such expenditures, then what is in bricks and mortar is the investment.
    Here we come to the rub, if one has invested in such a scenario, and feel good, what about health costs, and here the devil is in the detail, and the question-‘’How long does one and one’s partner live for?’’ and how does one pay for health, should one need care that is beyond ones spouse or partners capabilities? Here one may have to have some small savings readily available (Not already spent of a life of’ riley?’ Thoroughly enjoying with gay abandonment a life in retirement, being a bit irresponsible!).
    One cannot predict with certainty what one’s life span may be, and what ones end of life may depend upon support (medical or social), or what the actual cost of support will be in £”s”d (money). Here I come to John side of the equation and discussion point, I believe we as a society through parliament and the men and ladies in grey suits should at least provide some provision, and cash investment within the NHS and Social services budget to cover, or placate some of the costs we may incur as we age, not a pay all out but with some sort of means test, such that one may know (most importantly the future oldies) the boundaries of what responsible investments they may have to make in old age with regard to ‘what they may face’? If not to some extent prudent, with respect to their own lifestyles up to and entering retirement.
    We need a reasonable solution to this riddle, in days gone past it was our forefathers who passed on wealth in terms of money and cash, this generation must all pass on wisdom and cash, with a social consciousness of what is fair for all, so that those who have worked hard, been diligent, and honest can enjoy a happy old age.
    By the way the fixed price investment for the retirement accommodation is now reduced in value, compared to when the investment was made: However the Landlord if he has been wise, and not encourage ‘pyramid’ selling, may be able prior to termination offer some incentive/help towards healthcare costs, should these exceed my current income? Just a thought. So in a way I have bought into the ‘American dream’, which John May wish to promote?

    • john graham says:

      Thanks David, that is a comprehensive and well informed response. This is a complicated problem that can only be helped by carefully considered and experienced input. Your comment helps me to move another step along the way.

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