What is a DMF?
It stands for deferred management fee and it is used in most States as the legal term for the money you pay when you leave a retirement village – usually on your death.
Close to 100% of contracts covering the 2000 retirement villages across Australia are based on this DMF fee, which is also covered by of state legislation called the Retirement Village Act.
When you join a village you sign a contract with the operator which is basically a lease for you to occupy your village home and the use of all the gardens and facilities.
You pay a lump sum up front, which is like rent in advance.
The village operator holds this money until you leave. The operator then returns the money to you less an amount that pays for your rent whilst you are in the village. This is the DMF fee.
The longer you are in the village the bigger the fee. Most operators provide a choice of contracts and fees but the average is 5% of your lump sum each year capped at 35%.
The idea behind the DMF is it delays the profit that village operators receive until you leave the village.
They have to stay with you, delivering on their side of your contract, providing maintenance and support, until you die or move into a nursing home.
This is why it is called a deferred management fee.
Is it fair? You have to be the judge.
The operator builds the village with generous gardens and facilities that you won’t get with your family home. The operator then charges you a discounted upfront entry price, around 80% of the value of a similar home in the same area, so you have a cash nest egg after you sell your family home. And then the operator waits an average of 10 years to receive the profit from providing you with your village home.
And by law they are not allowed to make any other profit from you over that 10 years.
The deferred management fee is your investment in ageing well.