One unavoidable truth: we’re all ageing and so are our parents. As the Baby Boomers enter their golden years, Lucy Dean explores the challenges facing the aged care industry and what brokers need to know about catering to an ageing demographic facing decisions around aged care.
According to the Australian Bureau of Statistics, by 2026, there will be 658,900 Australians older than 85. By 2046, this number will hit 1,439,000. That’s equivalent to 4.4 per cent of the total population. In contrast, in 2006, Australians over the age of 85 made up just 1.6 per cent.
“Australians are witnessing the beginning of a demographic wave that will drive demand for aged care loans for decades,” says Martin Barry, senior vice president at La Trobe Financial.
“The number of people aged 85 and over has increased by 153 per cent over the last two decades. This trend is only going to accelerate, with the massive Baby Boomer cohort now well and truly facing retirement stage and those in the 85-plus cohort doubling by 2030.”
This wave will inevitably accompany greater demand for health and aged care products and services. The question is: will the healthcare and financial sectors be able to cope?
Mr Barry recognises the capacity issues that this trend presents, even noting that, currently, older Australians are hindered by the limited number of aged care-specific lending products on the market.
“Given the few lenders operating in this space, families do need to take the time to educate themselves on the various nuances and we suggest that they take professional advice,” Mr Barry says. The reason for this, Mr Barry explains, is that, “historically, it has been very difficult for older people to borrow against their property”.
He elaborates: “Lenders are concerned about their repayment ability and, in the case of frail elderly borrowers, lenders may be concerned as to their ability to understand the financial arrangement and the legal commitment.”
The Property Council of Australia and PwC both doubt that the country’s financial services and healthcare sectors can support the ballooning aged care demand. Their analysis predicts our senior population to grow by five million in 40 years, but according to them, our retirement villages are already 93 per cent full.
In New South Wales, Victoria, Tasmania and the Australian Capital Territory, there’s even less room — retirement accommodation is at 94 per cent capacity.
Noting this, the executive director of retirement living at the Property Council, Ben Myers, called on state governments last year to ramp up the development of retirement and care villages. According to him, the retirement living industry is “facing an imminent capacity crisis”.
“Many existing homes just aren’t suitable for our seniors to ‘age in place’; often they are older, contain trip hazards and [are] very difficult to maintain,” Mr Myers says.
“There must be more housing options for senior Australians, especially in our biggest cities where demand is at its highest, so people can live independently for longer.”
The by-product of a capacity crisis, the executive director adds, is that what remains becomes more and more expensive.
It doesn’t help that retirement village contracts can be so complex. Maurice Blackburn Lawyers announced in September 2017 that it would launch an investigation into a potential class action against retirement living chain Aveo.
Its reasoning? “We don’t think it’s fair or legal to subject elderly people to complex and confusing contracts that contain unfair terms.”
Where brokers come in
For Marguerite Taylor, mortgage broker at Reverse Mortgage Finance Solutions, catering to the reverse mortgage and aged care market is not a skill that can be simply tacked on to a resume.
“Like most lending, it [the aged care finance sector] is highly regulated by ASIC,” the broker says. On top of that, brokers have to be aware of the rules that apply to aged care financing that may not apply to general mortgages.
Those working in this area also need to have the ability to move quickly if clients don’t have the funds and have the tact to navigate complex family relationships, as it’s often that the clients’ children are the ones having the conversations.
“You can’t just jump into the space,” Ms Taylor says. “It’s quite unique. I think [the regulator scrutiny] has made banks shy away from the product because they see more regulations.”
Mr Barry notes, however, that La Trobe Financial isn’t one of them. Highlighting that the credit specialist has a history of catering to underserved borrowers, the SVP adds that Australia’s “oldest and most vulnerable citizens frequently fall into this category”.
“La Trobe Financial is taking a lead and has developed an innovate Aged Care Loan to assist with the substantial payments required to secure a room in an aged care facility,” Mr Barry says.
Paying for aged care
Before moving into an aged care or retirement facility, residents generally need to make a daily or lump-sum payment, typically around $300,000. The lump sum, however, can reach $550,000, says senior financial planner at Profile Financial Services Phillip Win.
The payment, called a Refundable Accommodation Deposit (RAD), is returned to the resident or their estate upon their departure from the accommodation.
Mr Barry explains: “Our product specifically funds the payment of the RAD, secured over the residential property, and also helps reduce the emotional and financial stress for families when moving a loved one to an aged care facility.”
While the market is overlooked by some lenders, Ms Taylor says that La Trobe Financial’s advantage lies in the fact that they’re not a large bank and therefore have the ability to meet clients’ needs quickly and think outside the square.
“They treat each individual case on an individual basis... If it’s an emergency, [and] you need funds very quickly, La Trobe Financial will be quite good at being able to distribute funds and approve loans quickly.”
Mr Barry says that their Aged Care Loan product was established with one thing in mind: solving the aged care finance problem. The SVP believes that it’s beneficial to brokers as well, saying:
“While the initial impetus for our aged care product came from specialist aged care advisers, we are now seeing significant interest and activity from the broader broker market. Our team of mortgage specialists is actively assisting brokers across the country with training and education.”
Concluding, Mr Barry says: “Brokers have a tremendous opportunity to diversify their product offerings. As well as broadening existing deal flow, this repeat business approach can deepen relationships with clients and position the broker better as a trusted adviser.”
Broker Insights: WHAT TO KNOW ABOUT AGED CARE FINANCE
It’s a whole different area, Reverse Mortgage Finance Solutions’s Marguerite Taylor tells brokers.
“The aged care industry itself is developing rapidly,” she says. “So, the rules around aged care are changing dramatically.”
Brokers also need to be well versed in assets and means tests and Centrelink, Ms Taylor adds.
“We well and truly exceed our normal professional development because it is changing [so quickly].”
Then there’s the interpersonal side of things. While her clients are usually financially savvy, working with people going into aged care usually means she’s dealing with her clients’ children.
“You’re dealing with powers of attorney, which is another interesting angle, and it has more regulations.” It’s never boring, she says, and it’s often rewarding.
She explains: “You get a great deal of satisfaction from helping people and solving families’ problems, where they’re very stressed at the time, both financially and emotionally.”
A WORD FROM LA TROBE FINANCIAL
Moving a loved one into an aged care facility can often be a traumatic experience. The financial side of this can add even more stress with pressure to find significant funding in a short space of time. Often a Refundable Accommodation Deposit is required and this can commonly exceed $500,000. How to fund this payment is a complex problem for many families. La Trobe Financial offers a loan that can be used specifically to make this payment, reducing the stress for families at a very emotional time. Our experienced team has developed a product that is easy for the client and their family to set up, making the transition to aged care less complicated.
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