No A+ grades for retirement villages on new scorecard

Saturday, 24 February 2024

Retirement villages have more work to do to ensure their residents are getting a fair financial deal, a new industry benchmark shows.

The Retirement Village Residents Association has released a best practice “scorecard” which grades villages on the 19 key terms found in occupational rights agreements (ORA).

It is based on the responses of retirement village operators to a questionnaire sent out by the residents’ association, and it suggests many operators have room for improvement.

Seventy-one operators covering 300 villages responded. None of those operators received an A+ grade, although some earned A and A- grades.

But Retirement Village Association executive director John Collyns said the scorecard was wrong and misleading, and association members had been told to disregard it.

“It fails to provide a comprehensive picture of the various offerings from individual villages, and it only has contributions from a tiny number of the 470 retirement villages across the country”.

About 50,000 older people live in retirement villages, which offer secure, managed homes and a social lifestyle. Of the 75+ age group, 14% are in a village.

Over recent years, the financial terms of village contracts and practices have come under increasing scrutiny from residents and advocates, such as the RVR and the Retirement Commissioner.

Residents buy an ORA that gives them the right to live in a unit in the village and when they leave or on their death they, or their estate, gets back the capital they paid minus a deferred management fee.

But operators are allowed to hold onto the money interest-free and can continue charging fees, until they sell a new ORA on the vacated unit. Residents say that is unfair.

Another issue has been that many villages do not share a percentage of the capital gains with residents on the sale of the unit, although some do.

The key terms assessed in the RVR’s scorecard, which is available online, largely relate to financial conditions, including deferred management fees, weekly fees, and payment on exit.

Retirement Village Residents Association chief executive Nigel Matthews said the metric for the scorecard was one they had been working on for two years.

The score was arrived at by looking across the operators’ answers on each of the key terms and weighting them according to their importance to residents.

A “Capital Gain Balancer” score, which was derived from questions about whether operators and residents could share in costs if the resident was sharing in the capital gain, was then added.

An F* grade meant that the operator had either not responded or declined to supply their key terms.

He said the aim was to ensure existing and prospective residents could easily see and compare the key terms in villages’ ORAs, based on factual data rather than subjective information.

“It also allows operators to see how their agreements measure up from a resident’s perspective, and hopefully it prompts some self-analysis.

“Some operators have already contacted us and said: ‘We’re an F – how do we improve this?’ which indicates there’s a willingness among operators to lift their game on behalf of residents.”

It set a clear benchmark around the key terms that were in ORAs, and was an accountability measure for a vulnerable group needing to make six- to seven-figure financial decisions, he said.

But Collyns said the analysis was flawed and incomplete and that its release had caused a lot of anxiety among residents upset at the portrayal of the villages where they were happy.

Residents tended to choose a village for safety and security, companionship, peace of mind, certainty of cost and a pathway to care if they needed it, rather than a business model, which was what the scorecard was based on, he said.

“Residents know there are deferred management fees and weekly fees that they will have to pay, and that is part of their equation.

“To use only the financial terms to rate villages as a whole is missing the point, and we urge caution when interpreting the scorecard.

“Financial terms are obviously important, we don’t want to minimise that, but they need to be presented in a way that residents can access and make their own decisions.”

The RVA had a key term summary for members, which was on its website, and anyone who wanted to could use it to compare village financial terms in a non-judgemental way, he said.

“There is a comprehensive legal framework to ensure prospective residents understand how the village they have chosen operates, and every resident is required to obtain legal advice before they can sign an agreement.”

In response, RVR president Brian Peat said the scorecard information was factual as it was taken from the documents being used by the operators and signed by the operator and the resident.

The RVR had been trialling the reporting for over a year, and last year's reporting was published, and the RVA knew that, he said.

“If they were not happy with the reporting then they should have discussed it with us. We have always been available to meet with RVA, and will continue to be so.”

The legislation relating to retirement villages is currently under review by the Ministry of Housing and Urban Development. It also addresses concerns around financial terms and conditions.