People considering moving into retirement living will be met by the “Deferred Management Fee” for the first time in their lives.

The words can be a cause of concern if they are new to you, but the use of the Deferred Management Fee (DMF) is being increasingly used by retirement living operators.

There are a variety of deferred payment structures reflecting a broad range of village standards, service offerings and financial arrangements tailored for residents.

The DMF is the most common financial model for retirement villages in Australia. It is simply a fee that is payable when a resident leaves the village.

The DMF helps reduce the cost of moving into a retirement village. It covers the operator’s initial investment in the village and helps to ensure that all residents have access to quality facilities and amenities while living in the village. It funds capital replacement works and village upgrades.

When it’s time to leave the village, a portion of the funds from the sale of the resident’s home will be kept by the operator, which is stated in the contract that is signed before the resident enters the village.

The DMF is usually a percentage of the entry or exit price, but it can vary depending on the village and the terms of the contract.

The benefits of a DMF

When a person buys into retirement living, the price is lower than if the person bought a similar property outside the village (see main image which shows the national average price is 55% of the median house price).

The lower price is because the buyer has deferred paying that difference until they leave.

By deferring payment until the person leaves the village, they will have more available money to use during their retirement. Additionally, the DMF contributes to capital improvements and community infrastructure in the village, which will benefit residents during their time there.

The 2021 PwC Property Council Retirement Census, an annual data collection process conducted amongst Australian retirement village operators, showed that the proportion of deferred payment structures with and without separate capital gains share for the resident is 37% and 63% respectively.

The 2021 Census showed that the maximum DMF percentage for 93% of villages is 36% or lower (36% of the entry price charged). The median maximum DMF percentage is 30% over 6 years.