Why retirement village contracts need to be regulated like insurance


Timothy Kyng, Macquarie University

While you may think signing a retirement village contract is similar to buying a house or apartment, it isn’t. Retirement village contracts resemble insurance contracts more than purchase agreements, only they aren’t regulated like insurance products.

The lack of regulation increases the risk for retirees. They face considerable delays in receiving their payments when they leave, costs due to the delay, and the potential loss of all payment from companies that don’t need to meet the financial standards of an insurance company.

Most retirement village contracts provide the consumer with a combination of the right to reside in the retirement village (until death, incapacity for independent living, or voluntarily relocation) and an “exit payment” upon leaving. As both the amount and timing of this payment depends on the resident’s death or ill health, the payment is a de facto insurance payout.

This makes the retirement village contract a combination of the right to reside and a de facto insurance policy. But the insurance policy comes from companies that wouldn’t normally be allowed to sell insurance.

Retirement villages are mostly small private companies or not-for-profit organisations. This means they aren’t required to publish their annual financial statements, hold reserves, or have reinsurance arrangements like an insurance company. The consumer can’t be confident that the retirement village is financially healthy and able to pay out the exit fee, due to the absence of information about their accounts and financial condition.

Fees and more fees

There is a great variation in the structure of the fees that retirement villages charge – entry fees, ongoing fees and a so-called “deferred management fee”, which is an amount taken out of the money refunded to departing residents.

These fees can be substantial – the entry fee alone is often comparable with the cost of buying an apartment. Although the amount varies by location, one operator told a Victorian parliamentary inquiry the entry fee was equivalent to 80% of the cost of a house nearby.

A retirement village contract might have an entry fee of A$1 million, a deferred management fee of 6% of the entry fee per year of residence, and a maintenance fee of A$500 per month.

For a contract with a A$1 million entry fee, after five or more years of residence, the deferred management fee is A$300,000, so the exit payment is A$700,000. But the deferred management fee can vary greatly. It may be 10% per year for three years, or 3% for 10 years etc.

The exit payment can also include some share of the resale value of the apartment. But the retirement village needs to be able to pay out this exit payment.

The need for proper regulation

The assets held by retirement villages are almost all invested in real estate. This is risky, as they aren’t diversified and their assets can’t be easily turned into cash.

When a retirement village has to pay a departing resident their exit payment it may take a long time to sell their apartment, which could involve a loss on resale. This can also lead to delays in receiving exit payments.

After signing their retirement village contract, residents are also in a weaker bargaining position than a traditional tenant in a normal pay-as-you-go rental arrangement. This is because residents have already paid their rent in advance for the rest of their life, and it usually costs a lot of money to get out of these contracts.

In some retirement village contracts the resident may be forced to spend a lot of money on renovations – such as for a new bathroom and kitchen – so that the apartment can be sold and they can get the exit payment.

This issue is compounded by the complexity of the contracts, which can be hard for both consumers and financial advisers to understand.

This creates substantial risk for consumers, and the lack of a requirement to publish financial statements and related information makes it very difficult to assess the financial soundness of a retirement village operator.

If retirement village contracts are in fact insurance agreements, then they should be regulated differently – by the Australian Prudential Regulatory Authority and not by state governments, as is now the case.

The ConversationIf retirement villages were properly regulated then consumers would be better protected from failure of operators and better protected from delays and capital losses when they get their exit payment.

Timothy Kyng, Senior Lecturer, Department of Applied Finance and Actuarial Studies, Macquarie University

This article was originally published on The Conversation. Read the original article.

EGYPT: TWO COPTS WRONGLY DETAINED, TORTURED


Government uses brothers as scapegoat in murder; officials claim violence not sectarian.

ISTANBUL, December 1 (Compass Direct News) – Two Coptic Christians wrongfully arrested for killing a Muslim during the May 31 attack on Abu Fana monastery in Egypt have been tortured and sent to a detention camp so authorities could try to extract a false confession, their lawyer said.

Egyptian authorities sent brothers Refaat and Ibrahim Fawzy Abdo to El Wadi El Gadid Detention Camp near the Egypt-Sudan border on Nov. 22. A week earlier they were bailed out pending their court case – but never released – and held in a Mallawi police station until their transfer to the camp.

The brothers’ attorney, Zakary Kamal, said the timing of the murder at the monastery rules out any possibility of the two Copts having committed it.

Monks at Abu Fana say the Fawazy Abdo brothers were far from the monastery at the time of the May 31 attacks, which began at roughly 4 p.m. and continued until police arrived four hours later.

Security forces are detaining the brothers to blackmail the Coptic Church into testifying that the attack against Abu Fana monastery in Mallawi, Upper Egypt, was not religiously motivated, Kamal said.

“They want the whole issue to be seen by the public as if it were an exchange of gunfire and a criminal case that had nothing to do with persecution of Christians,” he told Compass.

At the beginning of Refaat and Ibrahim Fawzy Abdo’s captivity in June, police subjected the two men to electric shocks eight hours a day for three days to try to force them to testify that the Abu Fana monks were armed during the attack, sources said.

Kamal said those guilty in the attack knew the brothers were innocent but attempted to extort 5 million Egyptian pounds (US$920,000) from the Coptic church in exchange for testimony in support of the brothers during informal “reconciliation meetings.”

Such meetings are somewhat customary in Egypt, in which different parties come together to settle legal matters out of court. Egyptian parliamentarians attended the first meetings, but the parties did not reach a settlement.

Kamal said he worries that police and parliamentarians are using the meetings to pressure the Coptic Church to agree to their terms and take the focus of the case off of rising sectarian violence within Egypt.

Reconciliation meetings are part of a larger trend in Egypt of the government framing such clashes as cases of simple land disputes with no sectarian overtimes, the attorney claimed, and so far he has refused to pay money in exchange for a testimony.

“I completely refused any agreements of reconciliation, because if we accept those terms, that means we admitted [the brothers] killed someone,” he said.

The two men worked as building contractors on the walls of Abu Fana monastery when nearly 60 armed Muslim residents attacked it on May 31. The attack left one Muslim dead, four Christians injured, and three monks briefly kidnapped.

Ibrahim Tiqi Riad, the brother of resident monk Father Mina, was also kidnapped and remains missing. A Coptic priest who preferred to remain anonymous told Compass that they believe he may have been forcibly converted to Islam.

In the course of the violence, attackers tied two of the kidnapped monks to a palm tree, whipped and beat them, and forced them to spit on a cross and give the confession of Islam, according to a report by the Coptic Assembly of America.

Five days after the attacks, security forces arrested the Fawazy Abdo brothers, charging them with murder. Their case is pending.

The families of the two men are suffering in their absence as they were the sole breadwinners. The electricity in their families’ houses has been shut off since they can’t pay their bills, Kamal said.

The reasons behind the death of the Muslim at Abu Fana monastery remains a mystery. Police did not record the details of the killing in the investigation report of the monastery attack.

Bishop Demetrios Avanmina, head of the Mallawi diocese and abbot of Abu Fana monastery, is working to resolve the matter with local politicians and security forces.

Avanmina declined to comment to Compass on the brothers’ captivity, saying only that he and others were working with the police and the state to resolve the matter.

 

Government Spin

The nature of the May attacks against the monastery, located 200 kilometers (124 miles) south of Cairo, is in dispute. Coptic advocacy groups claim the attacks were motivated by growing hostility against Egypt’s Christian community.

But local Muslims say monastery leaders were illegally taking possession of land and attempting to frame the attacks in the form of religious persecution in order to gain sympathy for their cause.

Gov. Ahmed Dia el-Din said police reports have documented disputes over the land going back several years, and that Abu Fana obtained portions of its land from informal contracts, resulting in the governor’s rejection of the monastery’s claim of possessing valid land titles, according to Egyptian weekly Al-Maydan.

Following the attacks, hundreds of Coptic Christians took to the streets of Mallawi to demonstrate against the violence. They chanted, “With our blood and soul, we will defend the cross.”

The monastery has seen violent episodes in the past with its neighbors, typically over issues relating to land.

In January another group of a dozen men armed with automatic weapons burned the monastery’s library and destroyed many monastic cells, according to the Coptic Assembly advocacy group.

The Coptic Church makes up at least 10 percent of the Muslim-majority country’s population of 80 million. Its church dates back to the early centuries of Christianity.  

Report from Compass Direct News