Warning about the financial 'fish-hooks' of moving into a retirement village

Sunday, 7 October 2018

The Commission for Financial Capability (CFFC) monitors the retirement village industry.

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 'license to occupy' a unit,' CFFC national manager of retirement villages Troy Churton said.

As part of a plan to ensure Kiwis are aware of the potential pitfalls of moving into a retirement village, the Commission for Financial Capability (CFFC) runs free events to help seniors - and their families - make the right decision about where to retire.

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.

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Troy Churton, the national manager of retirement villages at the Commission for Financial Capability, says many Kiwis do not fully understand the financial implications of retirement village contracts.

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An occupation licence is a personal right only. You do not own the property, but you have a contractual right to occupy that particular dwelling.

* Retirees struggle to buy into the retirement village market**

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. Currently just over 12 per cent of the country's 75-plus demographic live in retirement villages, however, Churton said that number was likely to increase substantially.

'Over the next 15-20 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 35,000-40,000.'

Churton said while the retirement village industry 'overwhelmingly' operated lawfully and effectively, the Commission was eager to bring as much awareness as possible about how they operate 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 already buy-in from the villages themselves with John Collyns, the executive director of the Retirement Villages Association (RVA), set to attend and answer questions at an upcoming CFFC seminar in Wellington.

RVA represents more than 95 per cent of the registered retirement village industry by unit number. Despite Collyns' attendance, Churton said the event was not a marketing exercise.

'It's designed to be a strict, hard-hitting information seminar to open people's eyes and help them do their due diligence better.'

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