Retirees hoping for a level playing field
An ageing population exposes the complexity of retirement village contracts, writes Rob Stock.
It’s known as ‘‘The Golden Triangle’’, though it’s got nothing to do with the opiumproducing area in Asia. It’s the triangle of land with its points in Auckland, Hamilton and Tauranga where the mass of New Zealand’s elderly population lives.
That’s where the booming retirement village industry is focusing its growth, which according to projections, is managing to keep up with demand, unlike other parts of the housing market.
Despite record migration of younger, working-age people, New Zealand’s population is ageing.
By 2033, there will be over 1.17 million people aged 65 or older, including 589,000 or so who will be aged 75 or older. The key densities are found in the Golden Triangle.
Just to maintain the roughly 12 per cent ‘‘penetration rate’’ for over 75s will require the building of another 25,000 or so units by 2033.
But a rising proportion of over 70s are choosing retirement villages, and the Retirement Village Association expects that to continue.
If the rate went up to 16 per cent, it’d be around 42,000, real estate company Jones Lang LaSalle forecasts.
But going into a retirement village is a big decision, and there’s nothing standard about the terms, conditions, costs and facilities villages offer, meaning there’s a lot of homework for people considering selling their home and paying big bucks for an Occupation Rights Agreement (ORA) to live in one.
Rob Wilson went into a retirement village in 2006. The lifestyle has been everything he expected.
There’s plenty of company. The place is tidy, warm and secure.
But the weekly village fee started rising in year one.
‘‘In about 18 months, the $90 had gone up to $115 a week,’’ he said.
‘‘We did our research in broad terms,’’ he said, working out they could afford $90 a week, factoring in inflation and future pension rises, but the costs rose faster than either inflation, or NZ Superannuation.
Rising costs are one of the reasons why some retirement village operators have started offering loans to residents, the other being to help people who can’t raise quite enough capital to pay for an ORA.
One of the benefits of moving into a retirement village is the element of certainty. Shock home maintenance bills no longer threaten, for example.
But not all villages follow the Ryman’s model where the weekly base fee is fixed and cannot rise, not matter how long the resident stays in their village unit.
Understanding what might happen in various future scenarios is hard, and it appears many people who go into villages may not be doing the ‘‘what if’’ planning that experts suggest.
Research by Cresa shows many people have already made the decision to move into a village before going to get legal advice. It also concluded that many found documents such as the village disclosure statements ‘‘overly legalistic’’ and ‘‘inaccessible’’.
Wilson says his experience is retirees get interested in the detail of the contracts they have signed when there is a problem – for example, they feel inconvenienced when the village they are in is further developed, as the village operator packs in more units.
They find they have signed legal contracts that protect the rights of the villages, he says.
Cresa’s research found village residents were content with their decision to move in, but Wilson says the only people Cresa surveyed were new residents still in good health, and in their ‘‘honeymoon’’ period, unaware of what the future might hold.
While legal advice is a legal requirement for someone before they sign up to a village, financial advice isn’t a legal requirement, and new residents didn’t want it to be.
‘‘There is no demand among intending residents for financial investment advice, although tools to assist them to think about budgeting under different scenarios would be welcomed,’’ Cresa researchers found.
The truth is that many residents would find leaving a retirement village and rehousing themselves ‘‘difficult financially’’, Cresa said.
The retirement village deal is broadly that a resident pays the village a capital sum for their ORA. That’s generally about twothirds the price of a stand-alone home in the area the village is located in.
Roughly-speaking they get around 20-30 per cent of that back when they leave, minus administration fees, and any costs for readying the unit for marketing to the next retiree.
If house prices have moved up, buying another home may be impossible.
Divorce, marriage, not liking a village, moving to a stage of life where aged care is needed, and rising weekly fees are all scenarios intending residents, and their families – who often help them do their research – should think through.
Wilson points to J Hughes v Belmont to illustrate how the unpleasant surprises can come from not thinking through scenarios, such as whether aged care is available on site.
It was a dispute from earlier this year between a woman (represented by her siblings) and a retirement village she moved into in November 2014. Her dementia worsened during this time, and she left to go into aged care on December 8, 2015.
The village did not prove to be the long-term home her siblings hoped because it did not also have an aged and dementia care facility like all of Ryman’s villages have.
The woman bought her ORA for $380,000, but the contract stipulated that an ‘‘amenity’’ fee would be deducted from the money that would be ultimately returned to her, with the fee amortised over the first two years of her residence.
During the first year, the amenity fee – should she have left – would have been $45,600. In the second it rose to $92,200, which meant that the 20 days between November 18 and December 8, 2015 were very costly indeed.
Concern over the failure to scenario plan led Cresa to suggest the Commission for Financial Capability, which commissioned the research, ‘‘consider developing a scenariobuilding tool for retirement village living, similar to ‘get sorted’ for older people and lawyers to test the impacts of different scenarios on the budget implications of retirement village living.’’
Troy Churton, the retirement village expert at the commission says such a tool proved too complex to create – partly because different villages had different operating models and different facilities – but work was ongoing on improving the content on Sorted.org.nz.
Wilson, now president of the Retirement Village Residents Association, applauds some moves to try to make the process easier for intending residents, such as the newly-developed ‘‘key terms’’ sheets for villages.
But he believes it is time for a complete review of the Retirement Villages Act, in part to decide whether residents need more consumer protections.
Churton says next month the Ministry of Business, Innovation and Employment will be presenting to the commission on its legislative review process.