We’ve all seen the advertisements for retirement villages. Happy couples playing bowls, socialising, and living in a resort-style environment. Smiles all round.

For many residents, that’s the reality. They love the security, the company, having their home ownership worries taken away, and knowing there’s help at hand when they need it. Their families sleep easy because mum and dad are safe and cared for.

How it works

Retirement villages are residential complexes designed for older adults, made up of apartments and villas for independent living. Many also have a rest home and hospital wing. They’re governed by the Retirement Villages Act and a Code of Practice, and overseen by the Commission for Financial Capability (CFFC).

Most villages sell what’s known as a ‘licence to occupy’. You don’t own the freehold title for your unit and you don’t get any capital gain when you sell.

When you leave, the village takes what’s called a ‘deferred management fee’. It’s around 10 per cent of the original purchase price per year for the first three years.

A business model, not a charity

There’s an emotional side to retirement living but, on the other hand, retirement villages are profit-driven – they’re a business. Shareholder value doesn’t always dovetail with the needs of ageing residents.

The hard, cold economic reality is the faster you move on because you fail medical tests, become ill, or die, the more profit the company makes.

If you stay for a decade or more, you get better value for your money, but any potential capital gain is lost. This might upset family members, who can see their potential inheritance shrinking by the year.

Many people love their retirement village lifestyle, but there are those who are against them too. Some complain that village managements sell units to people who’re not fit to live in them, knowing they’ll turn a profit faster.

Some village operators have increased the age of entry to 70 or even 75, which cynics say results in faster turnover.

What are the costs?

It’s not cheap to live in a retirement village. The costs of living in one aren’t limited to rapidly decreasing capital. You’ll also pay weekly fees to cover the running costs of the village.

In Wellington, for example, fees range from NZ$100 to NZ$125 per week. In Auckland, you could be paying up to NZ$235 a week.

Your weekly fee, which may or may not be fixed for life, covers village outgoings such as staff wages, cleaning, and maintenance.

If you need personal care, meals, cleaning, and other services, you’ll pay more, though some of it might be covered by the government.

You may be charged for damage or repairs to your unit during your time there, and sometimes it’s a complete interior refit. The work is booked through the village management, meaning there’s no chance to shop around. The management may clip the ticket with a service fee added to the tradesperson’s bill.

When you leave, you may be charged administration, sales and marketing fees, and legal costs.

Ultimately your decision is likely to be based on lifestyle choices over and above money. Nonetheless, the law requires you to take independent legal advice before signing the contract. It’s important to know what you’re signing up for, and to read contracts and fine print. Ask if you don’t understand anything.

Happy in Mt Eden

Nancy Walbran says she loves the companionship and community at her retirement village in Auckland’s Mt Eden.

The 84-year-old active retiree found living in her own home lonely after her husband died. She enjoys the community at her retirement village.

The location is ideal, just across the road from a bus route into the city. She says she’s very happy with the newly renovated building, movie theatre, and other facilities.

Residents can play mah-jong or bowls and enjoy a number of other activities.

A better deal

Colin Porter loves living at his retirement home in northern Auckland. But he spends much of his days fighting for a better deal for retirement village residents.

He says the Act and Code of Practice were written without significant input from residents. Some clauses in the occupational rights agreements signed by residents are not fair, he says.

In some villages, Porter says, residents are charged to replace items such as cook-tops and hot-water heaters, which they don’t technically own.

Another big issue is having to wait for the unit to sell before getting your capital back. That leaves some vulnerable older people financially strapped, Porter says.

As people age, says Porter, they often lose their ability to complain and may not stand up for their rights.

This way out

When you can no longer live independently, your contract with the village can be terminated. Many villages have rest homes and hospitals on site to cater for you as you age.

If not, you’ll need to transfer to another facility. Moving on can be expensive if you have to pay a transfer fee or buy a new unit.

If your original unit doesn’t sell, you’ll usually pay weekly fees on both the old and the new unit for up to three months. If one of a couple is more able-bodied and stays behind, living in two units can become expensive. This is important to research. Some rest homes have waiting lists for those wanting to buy units.

Is a retirement home right for you?

Most intending residents release equity from their home or other savings to help purchase occupation rights to a retirement village unit and to supplement their superannuation.

The Commission for Financial Capability suggests breaking your decision-making into three parts:

· Be clear about your personal and family circumstances and future lifestyle preferences. It’s not just about whether the village is right for you. Know if you are the right fit for the village community.

· Understand the costs of entry, costs while you are there, and exit costs. You must be comfortable with the financial implications of becoming a resident, relative to your unique financial position.

· Use tools on sorted.org.nz to work out how much equity you may need to retain for the lifestyle you want.

· Consider how your assets might be needed if you have a change of circumstances later on and require

· full-time residential care.

· Be honest about whether you fully understand and accept the legal regime, occupancy model and key consumer protections of living in a registered retirement village.

Source: cffc.org.nz (The Commission also runs retirement educational seminars around the country, see the website for details).

What if something goes wrong?

The CFFC collects complaint data from the villages and statutory supervisors, and reports on a range of subjects related to the villages.

The Commission’s National Manager (Retirement Villages) Troy Churton says the clash between the interests of the operators and the human interests of the residents makes it important to have an impartial organisation such as the commission providing independent information and monitoring.

Residents with complaints that aren’t solved in-house can escalate their issue to a tribunal operated by the Commission.

Published 29 February 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.