retirementJoe Oldman of Age UK points out that at the moment very few of us seem to consider moving into retirement housing as we get older, despite the many benefits.

It can take away worries about home maintenance, offer security, promote independence, prevent isolation and can give access to a friendly supportive community.

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The recent debate about older people occupying family housing after their children have left home, leaving rooms empty, has helped focus attention on the importance of this area of the housing market. There seems to be an assumption that older homeowners have a range of housing options available to them based on the equity value of their property – but this isn't necessarily the case.

You still need a significant level of equity to buy a retirement flat or even to simply downsize to something else more suitable. Even if you can afford to buy a leasehold flat you still need to take into account the ongoing costs, such as service charges and ground rent.

Costs that are hidden away

The problem is that these costs are not always easy to calculate. Indeed some of them may be hidden away in the small print of the lease. The Office of Fair Trading has recently released the outcome of a three-year investigation into what are known as 'transfer' or 'exit fees'. These charges are often based on a percentage of the market value when the property is sold. This can be a significant sum with percentages ranging from 0.25% and 12.5% (based on the OFT investigation).

What makes it worse is that the charges are often not in exchange for any services, such as the cost of administering the transfer - they represent pure profit for the landlord. Leaseholders are taken by surprise because they haven't realised this payment was part of the contract they signed when they purchased the property.

This is partly the consequence of the complexity of leasehold contracts and may also indicate poor advice, by non-specialist solicitors, during the conveyancing process.

Why these charges are unfair

The OFT concluded that the charge was unfair for a number of reasons.

They did not accept the argument, made by some landlords, that the fee was a way of deferring costs to make a property more affordable at the beginning. They said that it was often difficult for consumers to properly assess the financial significance of the transfer fee, especially given it's determined by the market value of the property at the point of transfer, which is difficult to predict.

The OFT also ruled that transfer fees for sub-letting were unfair. Theoretically, a leaseholder might have to pay a transfer fee for sub-letting every six months - depending on the length of the tenancy. This is very important in the current economic climate, where leaseholders are unable to sell and may need to sublet to cover ongoing property charges.

Although the OFT focused on transfer fees, Age UK argues there are wider issues around the lack of financial transparency for service and management charges, as well as the cost of maintenance and building insurance. This makes it difficult for a leaseholder to determine whether they are being misled or to identify ways of reducing costs.

What's being done

Although the OFT came to the conclusion that transfer fees are unfair, it has reached a compromise solution with large sections of the retirement housing industry.

This means that for large parts (though not all) of the sector, there will be no fee for leases passed on through inheritance and on sale it will be restricted to 1% based on either the price the resident bought the property for or the price on sale before transfer - whichever is the lower amount.

In addition, there will be a flat rate fee for sub-letting of £85. Despite this compromise solution, the OFT has said it may still review the position if the agreement with the sector proves insufficient. It has also called on the Government to extend the role of Leasehold Valuation Tribunals to allow older residents to challenge unfair fees (currently outside their jurisdiction).

Minimize your retirement risks and download this helpful 16-page guide: Top 10 retirement tips.

We need to go further!

Although Age UK welcomes the progress made by the OFT compromise, we would still like the Government to legislate to remove transfer fees altogether, to help restore confidence to consumers.

Retirement housing can be a great choice for many of us as we get older – but it is vital that potential purchasers obtain good independent advice that focuses on the long term costs and explores all the options available. The Age UK factsheet on buying retirement housing is a good starting point. To obtain more details about specific schemes you can contact the Elderly Accommodation Counsel, which specialises in this area.

Joe Oldman is Housing Policy Adviser for Age UK

What do you think? Has the OFT done enough? Or is its compromise leaving too many elderly people facing unfair fees? Let us know your views in the comment box below.

Seven retirement nightmares

  • 1. No savings
    <p> Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.</p>
    1. No savings
  • 2. Unsecured debts
    <p> Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS). Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of &pound;22,330. Whether you are retired or not, the best way to tackle debt problems is head on. Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors. Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.</p>
    2. Unsecured debts
  • 3. Mortgage debts
    <p> Recent research from <a href="http://globalcare.aviva.co.uk/">Aviva</a>&nbsp;found that 17% of over-55s are still paying off a mortgage, with an average of &pound;63,555 left to clear. And figures from equity release lender More 2 Life suggest that more than 100,000 over-65s are still struggling to pay off their mortgages. The pre-recession popularity of interest-only mortgages and the poor performance of linked investment vehicles, as well as the average age of a first-time buyer rising to 35, are among the reasons why. But meeting monthly mortgage repayments during retirement can have a big impact on day-to-day living costs such as food and household bills. Ways to avoid being caught out include taking out a mortgage over a shorter term that leaves you well clear by retirement age and overpaying on your mortgage when you can. If it is too late for that, downsizing could be an option, while equity release plans could also be worth a look.</p> <ul> <li class="li3"> <a href="https://www.dianomi.com/click.epl?pn=1408&amp;offer=582714&amp;campaign=4595">What are the ten pension mistakes millions of Britons make?</a></li> <li class="li3"> <a href="https://www.dianomi.com/click.epl?pn=1768&amp;offer=583695&amp;campaign=4594">Top 10 retirement tips - special 16-page guide</a></li> </ul>
    3. Mortgage debts
  • 4. Huge care costs
    <p> The cost of a room in a care home in many parts of the country is now over &pound;30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than &pound;35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: &quot;For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap.&quot; However, the only other answer is to save more while you can.</p>
    4. Huge care costs
  • 5. Fraud
    <p> Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to &quot;couriers&quot; who visited their homes. It parted consumers from &pound;1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: &quot;Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone.&quot; The same is true of boiler room scams that target wealthier Britons with money to invest, offering &quot;once-in-a-lifetime&quot; opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.</p>
    5. Fraud
  • 6. Unpaid taxes
    <p> The average UK pensioner household faces a &pound;111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra &pound;5864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.</p>
    6. Unpaid taxes
  • 7. Rule changes
    <p> Even the best laid plans can be derailed should the government change pension rules - especially for those already in retirement. Take income drawdown. About 400,000 individuals have set up their pensions on this basis that allows them to keep their fund intact while drawing an income, rather than buying a poor value annuity. The income they can take is therefore linked to the 'GAD rate' &ndash; set by the Government Actuary's Department and determined by the prevailing yield from a 15-year Government bond (gilt). But despite 15-year gilt yields falling sharply, the government last year slashed the maximum income that could be drawn down from 120% to 100% of the GAD rate due to fears that savers were depleting their pension pots too quickly. Many pensioners have seen their incomes plunge by more than 50% as a result - and there is very little they can do about it.</p>
    7. Rule changes


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