Following his presentation at our LEADERS SUMMIT, Robert Craven from Affinity Aged Care Financial Services tells us he has had a steady run of enquiry by village operators asking how to ‘negotiate’ their DMFs.

There is an increasing trend to offer a far larger ‘entry contribution’, which the operator then has in effect as an interest-free loan from the resident.

Robert used the slide above to show three real examples.

Option one is the standard contract with $550,000 entry price and 5% DMF per year for six years. Option three is where the entry price is $1M.

The example is based on a client that has sold their family home for $1.5M and their village home at $550,000, giving them approximately $1M in cash which will penalise their pension, reducing it from $874 per fortnight to $377 per fortnight.

This means the resident will have to dip into their savings at $337 per fortnight or $8,762 each year after tax.

Option three says the incoming resident opts to pay $1M and the village operator agrees to reduce the DMF by $30,000 each year.

By giving the larger amount from the sale of the house to the operator the incoming resident safeguards their pension from reduction – in effect giving the resident an extra $12,922 tax-free.

This equates to about 3 ½% per annum interest on the $450,000 additional paid to the operator.

After five years under option one the DMF is $133,189 and option three it is $102,500 – by putting up the $1M the resident pays $30,689 less in the DMF.

Under option three, the resident still has cash in the bank for a rainy day of say $400,000, the full pension covers their fortnightly fees so they don’t have to find that cash and at the end of the five years the DMF is 23% lower, saving $30,689.

The resident pays $43,611 less under option three compared to option one.