Village living’s hidden ‘fish-hooks’

Retirees, or those soon-to-be, are being warned of the financial ‘‘fish-hooks’’ that come with moving into a retirement village, with a government agency urging due diligence.

Faced with an ageing Kiwi population, the Commission for Financial Capability (CFFC), which monitors the retirement village industry, has been taking a proactive approach to ensure people aren’t caught out by inflexible contracts.

‘‘Many people do not fully understand the financial implications of retirement village contracts when they pay for a ‘licence to occupy’ a unit,’’ CFFC national manager of retirement villages Troy Churton said.

For example, Churton said, the occupation right agreements often had little financial sympathy when an occupancy ended, with some companies opting not to pay out the unit’s capital to the family until the unit was relicensed, which sometimes took months.

In the interim, the village operators could demand that weekly fees continued to be paid, leaving some families at a loss.

Churton said it was important that not just potential residents educated themselves about the potential pitfalls, but also their wider family.

‘‘For most families moving into a village is not a traditional financial investment. You’re going to be leaving less of your estate in your will so it’s important that family members understand a little bit more how the contractual and financial model works so they’re not unpleasantly surprised.’’

He said the key to success in retirement village living was getting the decision right the first time, taking advantage of legal and family advice before signing on the dotted line.

‘‘Different competitors will have different terms . . . The whole system is designed to be disclosure-led with a mandatory requirement for independent legal advice so it makes it very hard to go into this and say you don’t know everything you need to know.’’

New Zealand’s ageing population was one key reason for the CFFC-led information push.

Just over 12 per cent of the country’s 75-plus demographic lives in retirement villages but that was likely to increase.

‘‘Over the next 15 to 20 years, even holding at the 12.5 per cent penetration rate, the number of residents expected to be moving into villages will double – or possibly triple – from the current 35,000 to 40,000.’’

Churton said while the retirement village industry ‘‘overwhelmingly’’ operated lawfully and effectively, the commission wanted to bring more awareness to the ‘‘front end of the market’’.

‘‘The more aware the marketplace is, then the more likely it is that operators will respond to different demands and consumer interests.’’

There was buy-in from the villages themselves, with John Collyns, executive director of the Retirement Villages Association, due to attend a CFFC seminar in Wellington.