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.

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Australians want insurance against the burden of old age



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Aged care costs are rising.
Shutterstock

Susan Thorp, University of Sydney

With the cost of caring for the elderly increasing, and the population ageing, Australia needs new sources of funding for aged care. In many parts of the world some of the cost is borne by private insurance, and new research shows there is demand for this in Australia as well.

There are several models of insurance to help fund aged care. One model is similar to what is found in the United States, where a customer pays an insurance premium each year and the insurance provider then covers (at least part) of the actual cost of getting professional care. But this restricts the customer to getting formal professional care if they become disabled or incapacitated.

Another model, somewhat similar to the system in France, has customers paying a premium each year and then receiving cash payments if they require aged care. Under this arrangement the insurer pays an agreed amount of money each year if the customer is disabled or incapacitated. There is no restriction on how that money might be used. This model is more flexible, and allows the customer choice over who provides care (it might be a family member) and where they reside.

Aged care is costly and growing

People now aged 65 have close to a three in five chance of needing some type of formal care over the remainder of their lives and around a two in five chance of spending at least some time in residential care.

The cost for this care can run from around A$1,000 each year for basic home support, to around A$65,000 each year for residential aged care. The cost is typically shared between the care receiver and the federal government.

Home care supports people to live independently in their own home. This can range from help with housework or managing medicine, to nursing services and palliative care. Residential care is for people who depend on ongoing nursing and includes accommodation in an aged care institution.

People on the full Age Pension pay 17.5% of their pension as a basic fee for in-home care, or 85% of their pension for residential care. Better-off pensioners also pay an additional fee that rises with their income up to certain limits.

But despite the cost sharing, the federal government’s share is high and rising. Federal government expenditure on aged care is now around 1% of GDP and is expected to rise to around 1.8% by 2050.

Around 80% of people who receive some aged care also get informal help, often from family or friends. While this care is unpaid and hard to value, it is likely to be worth around 4% of GDP and can lead to a loss of earnings and emotional strain for the care giver.

There is demand for insurance

Insurance could be a solution to the scale, scope and cost of aged care. But in Australia, there is little on offer. Our research shows that a majority of middle aged Australians would purchase aged care insurance in the form of an income stream that pays extra if they suffer ill health.

We asked people to choose between several options for funding their aged care. A life annuity (a regular, life-long income of around A$25,000 p.a. including the Age Pension), aged care insurance (paying about A$26,000 in ill health or disability), and an account-based pension (such as superannuation).

Men chose to use 25% of their retirement savings of A$175,000 on the life annuity, about 15% on aged care insurance and placed the remainder in the account based pension. Women made similar allocations. Overall, people chose insurance payments that were similar to the actual costs of aged care.

Insurance that provides an income rather than reimbursements suits people who prefer informal, in-home care. This is most likely to be women who think they need high level, informal care. Men who thought they would need informal care did not choose the insurance.

Women’s willingness to fund informal care with income could be related to an anticipation that they will outlive their partners, a desire not to “be a burden” to their family, an intention to make gifts to children who care for them, or a wish for flexibility and control.

The ConversationLarge scale, long term aged care expenses are a relatively recent problem – the outcome of population ageing and rising health costs. Our study shows that many people want help to manage these risks. However the current design and marketing of aged care insurance products present an array of difficult financial and communication problems for the financial services sector.

Susan Thorp, Professor of Finance, University of Sydney

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

Push for Islamic Courts in Kenya Alarms Christians


Emergence of Somali-related Islamic extremists puts authorities on high alert.

NAIROBI, Kenya, February 11 (CDN) — A constitutional battle to expand the scope of Islamic courts in Kenya threatens to ignite religious tensions at a time when authorities are on high alert against Muslim extremists with ties to Somalia.

Constitutional provisions for Islamic or Kadhis’ courts have existed in Kenya since 1963, with the courts serving the country’s coastal Muslim population in matters of personal status, marriage, divorce, or inheritance. Kenya’s secular High Court has jurisdiction over civil and criminal matters, and even a decision in the Islamic courts can be appealed at the High Court.

The Islamic courts have functioned only in Kenya’s Coast Province, but in a hotly debated draft constitution, their jurisdiction would expand across the nation and their scope would increase. The proposed constitution has gathered enough momentum that 23 leaders of churches and Christian organizations released a statement on Feb. 1 asserting their opposition to any inclusion of such religious courts.

“It is clear that the Muslim community is basically carving for itself an Islamic state within a state,” the Kenyan church leaders stated. “This is a state with its own sharia [Islamic law]- compliant banking system; its own sharia-compliant insurance; its own Halaal [lawful in Islam] bureau of standards; and it is now pressing for its own judicial system.”

Muslim leaders are striving to expand the scope of Islamic courts to include civil and small claims cases. They also want to upgrade the Muslim tribunals to High Court status. These demands have alarmed Christians, who make up 80 percent of the population and defeated a similar proposal in a 2005 referendum. Muslims make up 10 percent of Kenya’s 39 million people, 9 percent of the population follows indigenous religions and less than 1 percent are Hindu, Sikh and Baha’i.

The National Council of Churches of Kenya (NCCK) said the Committee of Experts (CoE) responsible for “harmonizing” drafts from various stakeholders ignored their concerns. The committee was responsible for determining what matters would be unduly “contentious” and was charged with keeping them out of the draft.

“We wrote to them, but we have been ignored,” said the Rev. Canon Peter Karanja, NCCK general secretary. “Who told the CoE that Kadhis’ courts were not contentious?”

Saying the committee ignored the crucial requirement of omitting what is “contentious,” Karanja said it did little to build consensus. He said that unless the Islamic courts are stricken from the constitution, Christians might be forced to reject the document in a national referendum later this year.

Muslim leaders, just as stridently, insist that recognition of the Islamic courts does not elevate Islam over other religions, and that if the courts are removed they will shoot down the draft in the referendum.

The 2005 referendum split the country and was followed by a bitterly disputed presidential election in 2007 that sparked rioting, reportedly leaving 1,300 people dead. The election dispute was resolved with one candidate becoming president and the other prime minister, and at the heart of the proposed constitution is an attempt to transfer presidential powers to the prime minister.

Christian leaders point out that the “Harmonized Draft” of the constitution discriminates against non-Muslims and contradicts its own Article 10 (1-3), which states that there shall be no state religion, that the state shall treat all religions equally and that state and religion shall be separate. They see the attempt to expand the scope of the Islamic courts as part of a long-term effort by Muslims to gain political, economic and judicial power.

Muslim leaders claim that inclusion of the Islamic courts in the new constitution would recognize “a basic religious right” for a minority group. Some Muslim extremists have said that if Islamic courts are removed from the draft constitution, they will demand their own state and introduce sharia.

Extremists Emerge

The constitutional issue erupted as security officials went on high alert when sympathizers of the Islamic terrorist al Shabaab militia appeared in a protest in mid-January to demand the release of radical Muslim cleric Abdullah Al-Faisal, who had entered the country on Dec. 31.

Al-Faisal, imprisoned from 2004 to 2008 after a British court convicted him of soliciting murder and inciting hatred, is on a global terrorism list. Government spokesman Alfred Mutua said Al-Faisal has been known to recruit suicide bombers and was arrested for violating terms of his tourist visa by preaching. He was reportedly deported to his native Jamaica on Jan. 21.

Eyewitnesses to the protests in Nairobi told Compass one demonstrator clad in fatigues, with his face masked by a balaclava, waved the black flag of the al-Qaeda-linked al Shabaab militia and passed his finger across his throat in a slitting gesture, taunting passersby.

Officials from the Council of Imams and Preachers of Kenya and from Muslims for Human Rights defended the demonstrations as legitimate to condemn violation of Al-Faisal’s rights. At least one person died as the protests turned violent, and Internal Security Minister George Saitoti said five civilians and six police officers were injured, with one security officer wounded from a bullet said to be shot by a demonstrator.

Al Shabaab-affiliated operatives appear to have targeted Christians in Kenya, according to an Internet threat in December by a group claiming to align itself with the Islamic extremist militia seeking to topple Somalia’s Transitional Federal Government. In an e-mail message with “Fatwa for you Infidels” in the subject line to Christian and governmental leaders in Kenya, a group calling itself the Harakatul-Al-Shabaab-al Mujahidin threatened to kill Muslim converts to Christianity and those who help them.

“We are proud to be an Islamic revolutionary group, and we are honored to be affiliated with Al Qaeda, a group of honest Muslims in which we share long-term goals and the broad outlines of our ideologies, while focusing on our efforts on attacking secular and moderate governments in the Muslim world, America and Western targets of opportunity and of course Uganda, Ethiopia, Burundi and Kenya if they do not stop their assistance to the Somali fragile and apostate government,” the group wrote in the e-mail. “Although we receive support for some of our operations, we function independently and generally depend on ourselves…”

The group threatened to shake the Kenyan government “in minutes,” calling it the “the most fragile target in the world.”

The emergence of al Shabaab and its sympathizers in Kenya coincides with the swelling of the Somali population in the country to 2.4 million, according to the August 2009 census.

Report from Compass Direct News 

Christians Arrested for Operating Boys’ Hostel in India


Police accompanied by Hindu extremists charge pastor, evangelist with “promoting enmity.”

MUMBAI, India, September 2 (CDN) — Karnataka police accompanied by 10 Hindu extremists on Friday (Aug. 28) arrested a Christian operator of a boys’ hostel after the extremists accused him and another Christian of offering food, shelter, education and future job prospects as an “allurement” to convert to Christianity.

Hanuma Naik is also pastor of Indian Gypsy Works Fellowship (IGWF). After his release on bail the next day, he dismissed the allegations as fabricated, saying that parents of the 42 students voluntarily sent their children, ages 6 to 19, to the hostel. The parents had prior information and knowledge that Christian teachings are part of the program at the church-run hostel, popularly known as a “Christian Ashram,” he said.

Sub-Inspector Chemaiah Hiremath of Kunigal police station told Compass that Pastor Naik and another arrested staff member of the hostel, Rama Naik, had disclosed in voluntary written statements that another pastor, Madesh Kumar, was supplying them with books and other tracts. Asked about the “voluntary statement” he was said to have signed, Pastor Naik replied that both he and Rama Naik were forced to sign blank sheets of paper at the police station.

Hiremath told Compass that Ramesh Kariyappa, a resident of Kunigal, filed a complaint on Aug. 28 against Pastor Naik and Rama Naik of “forcible conversion” and using food and shelter as an allurement to convert. The sub-inspector went to IGWF, where 42 students mainly of the Lambani tribes are housed. He claimed the students were forced to pray to the biblical God, and that Hindus “have gods like Hanuman and goddess Lakshmi.”

Hiremath said the Christians had promised the parents of the boys that they would take care of all the children’s needs for food, clothing and education – a potentially criminal activity under draconian “anti-conversion” laws in force in some states, but not in Karnataka. Such laws seek to curb religious conversions made by “force, fraud or allurement,” but human rights groups say they obstruct conversion generally as Hindu nationalists invoke them to harass Christians with spurious arrests and incarcerations.

The Global Council of Indian Christians (GCIC) reported that Hiremath, Deputy Superintendent of Police Prabhakar Reddy and another official arrived at the IGWF church with 10 local Hindutva (Hindu nationalist) extremists led by Ramalingayya Gowda and two others identified only as Rangantha and Ramesh.

After falsely accusing the two Christians of fraudulently converting students to Christianity by luring them with food, shelter and education, the extremists slapped evangelist Rama Naik repeatedly and questioned many of the children about hostel activities, their studies and families, according to GCIC. Police put Pastor Naik and Rama Naik into a police jeep and confiscated Bibles and other Christian literature from the hostel.

With the Hindu extremists following behind them, the police then went to a nearby house church, Krupashraya Baptist Church (Grace of God Baptist Church) in search of Pastor Madesh Kumar, but he wasn’t at home. His wife, Glory Kumar, told Compass that she was feeding her 18-month-old son when three policemen and six Hindu extremists arrived, entered the house and began questioning her about church activities.

“They went around the house and picked up Bibles and some prayer books,” she said. Her son began crying, yet the police and extremists “in loud and threatening tones” sternly warned against future worship in the home and ordered her husband to report to the police station when he returned. 

The GCIC reported that the police and extremists then went to the Indian Christian Revival Mission in search of Pastor Ranjanaswami Raju at K.R.S. Agrahar, Kunigal Taluk limits, but he was away, and his house, where his church meets, was locked.

Police took Pastor Naik and Rama Naik to the Kunigal police station at 11 p.m. and charged them under various sections of the Indian Penal Code, including “acts intended to outrage religious feelings by insulting its religion or religious beliefs” (Sections 295-A) and “promoting enmity between different groups on grounds of religion” (Section 153-A).

When Pastor Kumar showed up at the Kunigal police station along with attorney N.R. Rajashekar the next day, Aug. 29, at about 11 a.m., Hiremath asked him about his source of income and his house church. Pastor Kumar told Compass that he replied that he was an insurance agent and that only praise and worship services were held at his house. Hiremath warned him against “conversion activities” – mistakenly implying that conversion is illegal in India – and sent him home.

Rajashekar told Compass that the Christians were simple, innocent citizens who were being treated like criminals.

Report from Compass Direct News