What you need to know when weighing up whether to move to a retirement village - the Commission for Financial Capability has all the tips

By Jenée Tibshraeny

To move into a retirement village or not?

About 12.5% of the 295,070 New Zealanders over 75-years-old have made the decision to go for it.

And with the country’s over-75 population set to increase by around 164% by 2043, the number of people exploring this type of accommodation is only set to burgeon.

So what do you need to consider if you or your family members are thinking about making the move?

The Commission for Financial Capability’s manager of retirement villages, Troy Churton, shares his advice in a Double Shot Interview.

  • Use a lawyer AND financial adviser

Churton advises talking to both a lawyer and financial adviser from the get-go.

With the regime being disclosure-led, he says it’s difficult to go to a village and then say you didn’t understand an aspect of what you were signing up to.

This sounds obvious, yet Churton recognises decision-making can be emotional, especially if you’re considering freeing up equity from a long-held home.

Furthermore he recognises it’s unlikely many older people have a complete grasp of all the financial implications.

He admits retirement villages aren't right for everyone. 

  • Don’t see a move to a retirement village as an investment

Churton says moving to a village should not be seen as an investment, as few villages share any capital gain on the value of a unit when you leave.

As a resident you’ll pay a capital sum to purchase an occupation right agreement for your unit. Yet between 20% to 30% of this sum will usually become the operator’s over the first five years or so of your occupancy.

Operators refer to this as a deferred management fee, fixed deduction, and capital sum deduction among terms.  

Some contracts go so far as to say that if there’s a capital loss, the resident could be asked to contribute to that loss.

However Churton says anecdotally an increasing number of operators are leaving this clause out of their occupation right agreements. And for those who have it, they’re becoming less likely to exercise their power to make a claim to loss.

  • Understand the ways you might own or occupy a unit

There are a number of offerings under an occupation right agreement, with by far the most common one being a licence to occupy.

This gives you the right to live in the unit, and use the amenities, without ownership rights. You can’t usually borrow against the value of your unit.

Another type of agreement is one where you buy your own unit title. In some cases this might mean you become part of a body corporate.

However Churton says: “It’s becoming rarer and rarer for somebody to find an actual unit where they buy the unit title of that unit.”

Other agreements include cross leases, leases for life and rental units.

  • Check to see whether weekly fees are fixed

While most operators will have fixed weekly fees, some will work on a cost recovery basis, which means fees could change.

Churton says any fee changes would need to be discussed and consulted on. They would usually involve the operator’s statutory supervisor.

Every operator is required to appoint an independent watchdog - a company or individual - to ensure the village is being run lawfully and prudently. Supervisors report to the Financial Markets Authority and Registrar of Retirement Villages.

“Professionally they have very high standards of care to fulfil their role,” Churton says.

“If you’re looking at a village which has a cost recovery model in the weekly fees, then you also obviously have a risk ratio that you’re happy to tolerate of 2% or 3% or whatever increase per annum over the time you’re there.”

  • Realise it’s unlikely you’ll be able to add terms to your contract

Churton says around 30% of lawyers will try to negotiate certain terms with operators on behalf of their clients.

However operators, particularly those with more than one village, are unlikely to budge.

“They want to try to get consistency with their terms and they’re unlikely to change the substantive terms of the contract, just because one person isn’t quite happy.”

He says it’s more likely that over time they address a collective issue.

For example a corporate provider recently decided to stop charging residents weekly fees once they had terminated their licences.

Bigger picture

Churton says, “There are certainly active lobbying residents out there and the Commission receives a number of their referrals.

“Overall however, the strong indications we get is that most residents are happy with the offering that they’ve entered in to.

“The number of complaints that we’ve started gathering data on, is still relative to the size of the industry, quite small…

“On the surface of it, it’s a very well performing industry and other jurisdictions from around the world are looking at what New Zealand is doing, and saying, ‘This is quite good’…

“Certainly it’s clear to me that operators are very aware of the need to innovate and not to fall too heavily on the laurels of the current profitable arrangements that they’ve got.”

Churton says there are some “discrete” issues, which the Commission is responsible for keeping an eye on.

The question is: “Is the regime future fit as well as being ok now - given that there are some clear trends in population growth and needs, especially to do with care?”

For more information, see this brochure put together by the Commission. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

20 Comments

This industry certainly has had some windfall gains with the phenomenal rise in property market valuations in recent times.
It can't last.

The industry is a shining example that it is possible to build housing - they manage financing, consenting and building apparently without trouble. What can Phil Twyford learn from them?

I moved into a 2 b/r townhouse in a Ryman Village in June 2016. The weekly fees are locked in at $99 a week for life. This covers rates, building insurance, lawn, gardens, and window cleaning. Also I have free use of all the facilities-including a saltwater heated pool and spa, library. movie theatre,, gym, billiard room, etc.There is regular entertainment, and a bar. The deferred management fee is capped at 20% (after 5 years).. If your'e worried about capital gain at this time of your life, stay where you are.It doesn', t concern me , nor any other residents I know here. Loneliness amongst the elderly is a real concern in NZ., so one should not underestimate the importance of the fellowshio that these villages offer.

Ex neighbours we have visited in homes and an in law who did the same thing three years back confirm your view. It’s natural to think about the cost, but it only impacts on the estate value and the occupant shouldn’t be worried about that. The homes also allow for varied levels of care and avoid social isolation. I think they are brilliant. It’s a pity that some elderly resist them until it’s the last couple of years of life, which is a windfall to the companies as they often die within 18 months. Move in when you are mid 70s and live.

Well its living, but in an environment where very few young people ever go. I know that if the resident needs care, then it is a solution. But so is home care and eventually, hospital.
If you don't need to be in there I would say don't go. It would have some resemblance to being in a prison.
Besides, when you croak it might well be a swift unexpected event.

We visit more often than we ever used to, the kids are usually the only one in the pool. The most annoying part is realising in hindsight how filtered the info was on health pre the home. Multiple falls and eating rubbish both went on undiscovered. The positive is that social people are happiest when around people and you get that a lot in these places.

Fair enough. Health issues is a big reason for joining up. But notice that when you visit, your children are the only children in the pools.

good other people's children can be awful.

like most things, there are village and there are villages. some seem to have lots of life and different ages and energy and others don't - so look around as the last thing they are is prisons! I am sick of people who tell others how to live; they know the cost of everything and the value of nothing

That's the thing. Move in when you're in good health, and able to take advantage of the lifestyle. I move in at 74. I get tired
of the people who tell me they think it's a good idea, but they're not ready yet. My reply is always the same- " are you waiting for a heart attack or a strpke"?

My mother and stepfather are poised to move into a mainstream retirement facility in Papamoa. Downsizing from their 3 bedroom freehold home also in Papamoa. Despite all my suggestions to look at more than one facility and to get independent financial advice my mother "fell in love" with the salesperson who became her new BFF. There was also a $1,000 referral incentive to one of her friends already living there. When I visited I asked the salesperson what percentage of the residents actually become actively involved in the resident social activities. She told me about 12-15%. The remaining residents keep to themselves. The CFFC information was an excellent resource for family and, I'm sure, potential residents with a stomach for careful due diligence. But there is a powerful and driven force behind retirement village operators, and sadly, the promise of a happy and comfortable final season for many seniors fails to materialize. The estate erodes and they are as lonely among their kind as they were in the community they left behind. Greener grass?

you sound like a very grumpy son or daughter worried about your inheritance. village might not be for everyone but as troy says the great number of residents are happy and thrilled they move there. the 12-15% who use things sound silly based on our experience - it must be a miserable place!

I couldn't agree more "getting older". In some families the loss of inheritance, overides the needs of the parents..
Why shouldn't they enjoy the golden years. There is much made of the loss of participating in capital gain, but never a mention of capital loss. There are risks in all investments. Just today a friend of mine finally sold his building section at Pegasus town, in North Canterbury. He bought it 7 years ago for 190k, and sold it for 145k. A loss of 45k, plus interest, and real estate fees, and rates. I see dairy farm prices have dropped 9.9% over the past year also. My village has a good sprinkling of "quake victims" from Christchurch. Believe me they sure as hell don't want to be battling insurance companies, and EQC, again should another severe 'quake hit Canterbury.

ProdProp, I think your folks are looking at the wrong village. I can only speak for myself here. In the Ryman village I am in (Charles Upham, Rangiora), most of the residents are actively involved in at least some of the activities. We have regular barbeques, and dance nights.We also have bowls (outdoor & indoor), and play against local bowling clubs. I'm involved with a mens club, where we have recently organised a cricket match against the staff ( and won),, 10 pin bowling, golf croquet. Next month 40 of us are going to an aircraft manufacturing business near here.We also have a racing syndicate going, and the happy hours here usually have around 300 attending. It is what you make it. The excersize programmes here are so popular that they have had to have extra classes.You can be as much part of the village as you want to. There is absolutely no need to be lonely in a retirement village. Of course there are people who don't socialize much, but that is their choice. Incidentally, there a a number of residents here who are still working. I have never heard of a $1000 referral incentive. this wood trigger warning bells with me. A well run village should not need to do this.

Sounds like a great place Alpeg. There are those precious people who get out of themselves and make things happen (I'm guessing you are one of them). And there are those that are appreciative of their leadership. And then there are those who are so wrapped up in themselves and their numerous woes that no amount of social opportunity will please them. I think in my parent's case they are closer to the latter than the former, no disrespect intended. That's just what they've allowed themselves to become. The kind of people others avoid. And there's no retirement facility on earth that can budge them from their tragic demise. Lonely all the way to the grave.

Two friends plus wife's parents have been caught up in having to move villages. As age / heath moves on suddenly what seemed like a wonderful place has some down sides. All villages are not equal. One friend was separated from his greatly loved wife due to their village not having secure dementia facilities. Another couple had to move to be closer to family and better care. They took a double whammy cost wise. A third friend has only been in his village for 6 months and has to move villages due to rapid onset of dementia. How come Troy Churton does not mentions this very common problem.

The retirement village operator I spoke with openly (and somewhat brashly) disclosed that mainstream operators know that sooner or later one or other or both of the couple moving in as residents will require hospital care. And that's where they make the cream. I have looked at hospital care costs in the villages and I can see why. Incidentally, the village my mother is about to move into hasn't built the hospital facility yet. At least another year away. And you can bet there will only be the Premium care rooms available when it is built. When I consider all the costs of living in a retirement village I can only draw the conclusion that it is extremely expensive rent that erodes your estate at an alarming rate. No wonder only 12.5% of over 75's end up there.

In Ryman villages there is a full range of care. There are people in my village who have their spouse in hospital or dementia care on the same site. You simply have to do your homework, and ask the right questions. I have come here for "future proofing", My health is good. If it deteriorates I don't want my family having to make difficult decisions. Once you are in the Ryman system, you have options which include staying in the same village.Incidentally I am not a Ryman shareholder-I wish I was!! Oh and if you can live anywhere for $99 a week including a range of benefits, please tell me.

Key words, "In the system now". This terrifies me!

Retirement home/village costs have certainly gone up astronomically in the last 5-10 years. Its highly probable they will go up a lot in the future as well. Worth planning for earlier on in life, as the figures can be quite daunting.