A leading pensions provider has joined forces with a retirement homes developer and operator to build a new retirement village in Buckinghamshire worth around £80million.
This is Money can reveal the Royal London Pension Property Fund has agreed to provide funds for Audley Group’s Wycliffe Park development, a 25-acre site at Horsleys Green.
Audley will be responsible for delivering the site – which is located between Stokenchurch and High Wycombe – and subsequent operational running of the village, including the sales and marketing of all the properties.
The finished homes will be sold on a 250-year leasehold basis to retired buyers (stock image)
The finished homes will be sold on a 250-year leasehold basis to retired buyers, with homeowners then expected to pay a £750 monthly management charge to Audley.
Together with a percentage fee – paid upon sale of the property in the future – this income will be used to pay running costs within the community, supplement access to care and provide a long-term yield to Royal London’s pension holders.
The deal means Royal London will recoup its capital outlay from the sale of the properties, leaving the fund with a secure, inflation-linked income guaranteed for 250 years.
What’s on offer?
Apartments cost on average £450,000 for a two-bed 950 square foot property bought on a leasehold basis.
Audley Group will hold an overall lease over the development, with the 156 subsidiary lessees (i.e., the buyers of the properties) paying a monthly management charge of around £750 to Audley.
A percentage fee is also payable out of the equity raised through the sale of the home, typically upon death of the homeowner.
This is calculated based on the value of the home when it is sold at a rate of 1 per cent for every year of ownership.
- All external maintenance on the property
- All maintenance of the grounds and surrounding areas
- Membership of the Audley Club, a central facility offering residents access to a restaurant, gym, pool, treatment rooms and other community services
- 24 hour emergency response call system
Nick Sanderson, chief executive of Audley Group and chair of trade body the Associated Retirement Community Operators, said: ‘We’ve known for a long time that the UK has an ageing population and that there is a lot of sense in linking pension fund liabilities to housing that same ageing demographic.’
Andrew Johnston, head of alternative property investment at Royal London Asset Management, added: ‘The retirement living sector in the UK presents significant investment opportunities.
‘Changing demographics with an ageing society and a significant under supply of modern, purpose-built age appropriate housing points to strong sector growth in the years ahead.
‘Addressing this under supply can have far reaching benefits such as a more efficient housing market, contributing to the fight against climate change, a more efficient use of energy and supporting changes in social care.
‘Investors have an opportunity to make a real difference and make a positive impact while securing attractive returns.’
Audley and Royal London declined to confirm the expected yield from the project, but signalled it would be competitive with alternative asset classes.
The start of a trend?
The move signals pension funds’ increasing appetite to invest in physical retirement property assets that provide a long-term stable income for their members.
In 2017 Axa Investment Management acquired a retirement homes developer, Retirement Villages Group, through its Real Assets fund, giving it indirect access to later living real estate capital assets and income.
At the time Andrew Ovey, head of healthcare at AXA Investment Management Real Assets, highlighted what he called ‘significant scope for further penetration of an undersupplied market providing long-term stable cash flows, for the benefit of clients’.
In the same year Legal & General established Legal & General Capital, with a mandate to invest in companies that actively buy and develop land across a number of real estate asset classes including affordable homes, modular homes, build to rent, build to sell and later living.
There are more than 12 million over-65s in the UK with this figure expected to increase by 50 per cent over the next 20 years (stock image)
The decision was specifically designed to back Legal & General Retirement’s growing annuity liabilities and in the two years since, the fund has established Inspired Villages and Guild Living, developers and operators of out of town and urban later living communities, respectively.
The combined gross development value of these businesses now exceeds £2.8billion.
This is still a relatively new strategy for pension funds, but there is a clear commercial advantage.
Today there are more than 12 million over-65s in the UK with this figure expected to increase by 50 per cent over the next 20 years.
By 2021, there will be 3.4 million last-time buyer households in the UK – those looking to downsize – and just 7,000 retirement homes delivered to the market each year.
Audley’s Sanderson said: ‘It’s been discussed for a very long time – I think in the UK the problem has always been that institutional investors are quite rightly cautious about where they put members’ money.
‘Typically, they will invest in sectors that are well-defined, well-categorised, well-researched and well-understood.
‘When it comes to a relatively new and innovative structure, such as retirement villages in the UK, it has been quite hard for them to commit. That has meant they come to new sectors a bit late.’
Both Audley and Royal London are keen to explore further sites and potential developments funded in the same way.
Sanderson added: ‘To work in partnership with Royal London to develop a scheme and sharing some of the rewards of that is a very effective way for us increasing our development programme and for them to raise a guaranteed income without the need to deploy capital long-term.’
Many pension funds already hold physical property assets, from student rental accommodation to commercial properties, which Sanderson believes could be repurposed into retirement living communities, with social care part of an integrated package.
Creating flexible social care
At Audley, home-based care is available based on individual need (stock image)
Analysis: Fixing social care policy
Covid-related healthcare and the economy have been the government’s priority over the past six months, but lockdown has also – highlighted the critical condition of our elderly and social care system.
The crisis that rocked care homes after hospitals released elderly patients, some of whom were almost certainly infected with cornavirus, sparked public outrage.
Speaking to the all-party parliamentary group on coronavirus earlier this month, Helen Wildbore, the director of the charity Residents and Relatives Asscoiation, warned that the cost on care home residents was not restricted to their physical health.
‘People go into care not just to have their physical needs met, but also their social needs,’ she said. ‘And if you take away that social support network, homes become very different places.’
The prospect of pension funds funding purpose-built retirement homes for those who can afford to pay for them offers the well-off an alternative to state-funded care with the advantage of retaining their independence.
It also provides beleaguered pension funds with a very real, sustainable alternative income stream to government bonds, whose yields have waned as interest rates remain at historic lows.
It doesn’t necessarily answer the care crisis that faces those without the means to downsize and pay relatively high monthly fees however.
For them, options remain too few.
The argument for stepping up pension fund investment directly into retirement communities is not just financial, match-funding income with their liabilities.
The advantage for those living in retirement communities is that they offer a different option for retirees who want independent living, home ownership and flexible access to social care.
At Audley developments, for instance, home-based care is available based on individual need and ranges from home cleaning and care once a week to full-time care in the home. Prices vary according to care plans.
Sanderson said: ‘The underlying attraction of this approach to all of us is the relevance of this sort of lifestyle for older people in this climate.
‘We’ve seen during the past six months that the alternatives – either staying in a residential care home or in the family home in isolation – have not been particularly attractive.
‘This option allows older homeowners to downsize, release capital and stay safe within their own home, with our staff available to support them quickly when or if needed.’
He added: ‘Keeping people within their own homes and providing them with the right level support is the future.’
Boris Johnson first vowed to ‘fix’ the social care crisis in Britain in June 2019 during his opening address as the country’s premier.
The Prime Minister has since promised the Conservatives would ‘end the injustice that some people have to sell their homes to finance the costs of their care while others don’t’.
But in March 2020 Mr Johnson admitted that the implementation of social care policy to improve provision of care and funding might take five years to deliver.
In June, health and social care secretary Matt Hancock, said the coronavirus pandemic might delay things further.