What really matters to residents when it comes to rising living costs in retirement? Consultant Coral Harvey shares the surprising insights we uncovered by speaking with the residents themselves. From service charges to support services, here’s what we learned from real conversations that are shaping the future of later living.

Managing Rising Service Charges in Later Living Communities

In November 2024, the Government released the Report of the Older People’s Housing Taskforce. The report highlights the growing concerns around escalating service charges across the later living sector. The Taskforce had found many senior citizens were worried that they would not be able to afford increases in service charges and unexpected costs if they moved into a later living community.

As the demand for later living developments continues to grow, so do the costs associated with maintaining these communities. Service Charges are a critical part of providing high-quality services, however, rising costs can be felt more-so in later living communities, where most residents have fixed pension incomes, and where a wider range of amenities are offered. Swimming pools, gyms, restaurants and 24-hour support services enhance the quality of life for residents but add a considerable expense to the annual running costs. This can be particularly challenging for residents on a fixed income.

Over the past two years, SAY have held hour long, one-to-one consultations with over 500 residents living in later-living communities. Their feedback has been invaluable in shaping our understanding of how financial arrangements impact the day-to-day lives of residents.

Exploring the Possibility of Amending Residents’ Financial Responsibilities

Retirement operators have been exploring new ways to give residents more control over their financial obligations while continuing to deliver the high levels of service they expect. This includes offering more flexible financial arrangements, such as the option to pay a subsidised variable service charge or a fixed fee in exchange for agreeing to a higher deferred management fee.

This option offers a balanced approach. Residents can review their financial circumstances and amend the financial terms within their lease, should they wish too, whilst retirement operators can continue to maintain the high standards of service and care required to ensure the community remains a desirable place to live.

The push for greater financial transparency and flexibility is a positive step forward in ensuring that later living communities remain sustainable and attractive places to live for generations to come.

This industry movement is supported by Associated Retirement Community Operators (ARCO), the main body representing the Integrated Retirement Community sector in the UK. Additionally, the deferred management fee model aligns with the financial structure seen in retirement communities across other markets, like Australia and New Zealand.

What is a Deferred Management Fee?

A deferred management fee is a percentage-based fee that is deducted from the sale price of a retirement property when the lease is assigned to a new owner. The fee is usually withheld from the proceeds of the sale, and it’s "deferred" because it isn’t paid upfront, but rather at the time of completion.

Generally, the deferred management fee is calculated as a percentage of the property's sale price and depending on the specific terms of the agreement, can range from 5% to 30% of the sale price.

The fee percentage often increases over time, meaning that the longer a resident stays in the property, the higher the resale percentage will be when the property is sold. Before committing to purchase a retirement property its crucial for potential buyers to understand the terms of the deferred management fee and any associated conditions.

The deferred management fee model being adopted by retirement operators, allows residents to pay lower ongoing service charges during their time in the community, with the larger fee only becoming payable when the property is resold.

Resident Feedback: Understanding the concerns

Over the past two years, SAY have held individual consultations with over 500 residents living in later living communities across the UK. This has given us an opportunity to understand firsthand how the significant rise in service charges is impacting the residents in later living communities.

The residents we have spoken to represent a variety of backgrounds, from those who have lived in retirement communities for several years to those who are considering moving to a community.

The key theme which has emerged from all our discussions is the shared desire for more financial clarity and control over future costs. Many residents indicated they find it difficult to plan for the long term, particularly in regard to the unpredictability of service charge increases.

We also understand it's not just their own financial future that residents are concerned about. With service charges increasing year on year, it's crucial for residents to also consider the potential financial implications for their families when they pass away. Service Charges often remain payable until the property is sold, creating unforeseen financial burdens for loved ones.

Certain retirement operators have factored in this concern, adapting the deferred management fee model to include suspension of service charges once the property is vacant.

During the consultations SAY have conducted with residents, we have presented a personalised financial illustration tailored to resident's circumstances. Residents have valued the transparency and the ability to plan for their future, gaining a clearer understanding of the financial obligations related to their property.

Certain types of residents are more likely to embrace a deferred management fee model. Residents who need to prioritise affordability immediately appreciate the flexibility of reducing their service charges upfront now. The structure is also more appealing for residents anxious about future costs. The model can provide peace of mind, with residents feeling secure in the knowledge that they can plan for future finances more accurately.

For others, the ability to reduce monthly outgoings, even at the expense of a larger deferred management fee, is seen as a reasonable trade-off for ensuring that they can live comfortably now without worrying about fluctuating service charges.

Industry Movement

According to Knight Franks Seniors Housing Trading Performance Review 2024/25, where they analysed data from 112 later living communities, 85% of operators charged a deferred management fee or event fee upon resale. Notably, more than half (51%) of these operators offer multiple deferred management fee options, reflecting a growing trend towards flexibility.

The data shows the maximum caps on deferred management fees are rising too, with 33% of schemes now offering a cap above 20%, compared to just 14% in 2019.

The number of schemes offering a deferred management fee up to a 10% cap has drastically fallen, from 28% in 2019 to just 1% this year. These findings align with industry feedback, with 71% of operators indicating that their approach to event fees will likely change within the next five years, and 57% believing a cap of at least 30% would be acceptable to customers.

Looking Forward: Supporting Future Later Living Residents

As retirement living continues to evolve, it’s evident that the needs and priorities of residents are changing. More people are seeking financial certainty and transparency, as well as ways to better manage rising costs. The deferred management fee model is one of the ways that retirement operators can meet these demands, while also ensuring that communities remain financially viable and offer the best services possible.

At SAY, we continue to work closely with residents, operators, and developers to help navigate these changes. Through our comprehensive consultations and personalised advice, we ensure that residents have the information they need to make informed decisions about their future.