Retirement villages: What’s the catch?
Every week, 80-90 older New Zealanders move in to retirement villages, hoping they’ll ditch the drags of home-owning without losing the benefits. Nikki Macdonald examines the fishhooks embedded in a growing number of Kiwis’ last move.
hey’re billed as retirement resorts – lakes, lifestyle, low stress and a bloke’s shed to boot. But unravelling the complexity of retirement village contracts is anything but low stress.
With 41,000 Kiwis now adopting such grand-sounding addresses as ‘‘Rita Angus’’, ‘‘Bethlehem Shores’’ or ‘‘Hutt Gables’’, and another 1750 units being built every year, retirement villages are booming.
The model seems simple enough: you pay for the right to live in a unit for life and you get a likeminded community of older people, a bowling green, bingo and maybe a swimming pool. Then when you move out or die, you get back whatever you paid, minus a fee of 20-30 per cent. Call it a rental for the use – and upkeep – of the facilities.
The upside is someone else deals with maintenance and bills; the downside is you give up some control and any capital gain in the value of your unit.
But the devil is in the detail. Villages charge weekly fees, which can continue long after you’ve departed. The capital loss means that, if you need to move, you’ll struggle to buy elsewhere. And as operators increase minimum-age limits, from 55 anywhere up to 75, you can find your able, independent community suddenly looks more like a care home.
Sceptics say the rising age is a ploy to turn over units more quickly, as the management fee tends to be capped after 3-5 years so the shorter the stay, the more frequently operators can clip the ticket.
Retirement Villages Association executive director John Collyns says rising age limits simply reflect reality – as people retire later, they’re older when they move into villages. About one-third of his members have a minimum age of 65, another third say 70, and the other third is roughly split between 55 and 75.
Collyns says those moving into villages often want to downsize, free up some cash by selling the family home, or ditch homemaintenance hassles. Their numbers are growing, and they make up 13 per cent of all over-75s.
Asked if he thinks residents get a fair deal, Collyns says village agreements are transparent, and legal advice is compulsory.
‘‘On day one, every resident will know, almost to the last dollar, how much they are going to get back in one year, five, 10, or whatever it might be.’’
He also disputes the idea that village operators get rich from capital gain, as they have to pay that back – less the management fee – when the unit is unsold. But he concedes village owners get the use of that money in the meantime.
With the flashest Auckland villas going for $2m, that’s a $2m interest-free loan that can be invested. And the management fees, which increase as the unit gets more expensive, generally aren’t taxed.
Troy Churton, who covers retirement villages for financial watchdog the Commission for Financial Capability (CFFC), says most people aren’t worried about how much capital gain they’ve missed out on, or what weekly payments are ongoing, when
they’re in their coffins. And most are happy with the move.
But there are fishhooks that can affect quality of life. He urges people contemplating retirement villages to consider three things: the personal, the legal and the financial.
Are they the kind of person who wants to live in a community of older people? Are they OK with potentially being charged weekly fees after they move on, or having to buy a new fridge they don’t get to keep? And do they have enough money to deal with unexpected costs, or delays in getting money out?
‘‘Relying on super in a retirement village is not something we think is ideal for people’s wellbeing,’’ Churton says.
Mediator Jennifer Mahony gets a call about once a month about retirement village disputes. They’re often about poor maintenance or ratty gardens, or promised upgrades failing to materialise. She says those considering the move should take their time, and not be afraid to complain once they get there.
FEE FISHHOOKS
When Nelsonian Jack Fulton tried to sell his mother Edith’s retirement village unit, the village operators wouldn’t allow For Sale signs. He figured they had little incentive to speed the sale, because Edith’s contract required her estate to keep paying the monthly village fee until the unit sold, though noone was living there.
The sale took six months, leaving Fulton thousands of dollars out of pocket. But unlike most new retirement village residents, Edith owned her unit outright, so Fulton at least reaped the capital gain from the sale.
Village operators charge weekly or monthly fees to cover operating costs such as staff wages, gardening, maintenance, rates and insurance. They range from $100 to $200 a week. Some companies fix that fee for life, some increase it annually – but not by more than the increase in superannuation, whereas others have no cap on the increase, creating a financial risk for those on fixed incomes.
While many major village owners now stop charging weekly fees when a resident dies or moves out, some operators keep charging until the unit is onsold. The fees must be halved after six months.
‘‘What they’re doing is not unlawful, but it is something to be aware of,’’ Churton says.
Ka¯ piti Coast village Parkwood continues charging fees after a unit is emptied. General manager Mark Rouse argues that’s reasonable, as the village’s fixed costs don’t change. But Parkwood is also one of the few villages that gives outgoing residents a share of any capital gain, highlighting how difficult it is for residents to work out where they would be best off.
There can also be issues over what weekly fees should cover. Anton Coetzee, who is on the Retirement Village Residents’ Association executive committee, had an 18-month dispute with the owners of his Omokoroa village, near Tauranga, because he says they were using the weekly fee to recoup future maintenance costs, such as the replacement of roof tiles and cobblestones. His operator eventually switched to a fixed fee, linked to the Consumer Price Index, but he fears other operators are using the same model.
‘‘Because the residents do not have a palate to take these people on, they just accept it.’’
THE END
‘‘In the end, when you want to terminate the agreement, that’s when you realise things are not always as good as they appear in the beginning,’’ Coetzee says.
He has dealt with two families who have faced long waits to recover money owed to them after a loved one died. In most cases, when a resident leaves, village operators will pay out only once they’ve signed up a new resident.
But that process can be stalled still further by delayed refurbishments, or village owners undertaking major renovations from which the former resident reaps no benefit. In one case, ‘‘refurbishment’’ took 11 months, Coetzee says.
‘‘Refurbishment might take four weeks – laying new carpets and repainting. But they take the kitchen out, they take the bathrooms out, sometimes realign interior walls, basically redo the whole thing from scratch. That can take months. Then they call that refurbishment.
‘‘There’s little incentive for them to hurry it up. They sit on the ex-resident’s funds, interest free. And they still get their weekly fee, albeit reduced by 50 per cent after six months.’’
The delays can also be masked by misleading documents. His own village says its average resale time is 29 days, but that’s actually the delay after refurbishment is completed.
Some companies do pay interest if it takes more than six or nine months to resell a unit. Metlifecare pays out $20,000 as soon as the unit is vacant. In Australia, Ryman promises to pay out within six months, but that guarantee does not apply here. A spokesman says they’ve never had a unit take longer than six months to sell.
Collyns says villages don’t profit from weekly fees and make money only when a unit is onsold, so there’s a strong incentive to get replacement residents quickly. However, with a nationwide shortage of tradesmen, it’s not always possible to complete refurbishment quickly.
Coetzee wants the government to improve retirement contract conditions.
‘‘Even though it’s compulsory for a new resident to go to a lawyer to scrutinise the document, it’s almost a Hobson’s Choice. Whether you go to a, b or c, they all have the same conditions. So if you want to move in, what do you do? You just have to close your eyes and take it.’’