Risks of retirement roulette

Entering a retirement village means major investment and lifestyle decisions. KATHERINE HOBY looks at the dangers and at moves to give better protection.

Almost half a million New Zealanders are in the "Third Age"- more than 65 years old - and that is expected to double in 30 years.

Most people prefer to stay in their own homes as long as they can. But the number of superannuitants choosing to live in retirement villages has risen 50 per cent over two years to about 15,000.

As an option for the elderly, the villages are promoted as friendly, independent and affordable. Unfortunately, they do not always deliver the desired peace, security and services.

Some elderly residents who have signed complex contracts find themselves locked into deals, not getting the services they expected, or being forced to pay higher-than-expected services fees.

Senior Citizens Minister Lianne Dalziel is pledging "comprehensive protection" to those living in retirement villages.

She is talking to Government departments and bodies such as Age Concern, Grey Power and the Retirement Villages Association with the view of having a bill ready for Parliament this year.

The idea of separate legislation for retirement villages follows Law Commission recommendations that such villages should be covered by separate and freestanding legislation.

The Retirement Villages Association has said it supports the idea of legislation to safeguard the rights of older people.

What is a retirement village?

A definition is difficult. A retirement village is generally understood to mean a collection of residences - sometimes with shared recreational, dining, rest-home, or hospital amenities - designed to accommodate the elderly.

But "retirement village" is not a precise or legal term, and can be applied to a wide variety of arrangements.

What sort of different living arrangements can you enter into at a village?

A survey commissioned by the Retirement Villages Association in 1998 analysed 205 retirement villages around the country. They consisted of 6777 units and 2231 serviced apartments.

They ranged in size from the very small (nine units) to 200 to 300 units. Options range from townhouses through serviced apartments to full-sized communities.

Levels of services and amenities differed widely, and there was no uniformity in legal structures.

Why are retirement villages becoming more popular?

Families are generally smaller now. Where a couple might once have had four or five children, the average is one or two.

More people travel more for work, and where we might once have wanted to - or felt obliged to - take in elderly parents, it is no longer easy.

Elderly people choose to live in retirement village units or apartments for many reasons - security, social reasons, peaceful surroundings.

Many are no longer able to cope with maintaining large homes, but are anxious to preserve as much independence as possible. This is often the group catered to by retirement villages.

At what age do people enter retirement villages?

The survey for the villages association said that, in the case of its member villages, the average age per village of new residents (omitting new entrants to rest homes and hospitals) ranged from 65 to 88 years.

More than 454,000 New Zealanders are aged more than 65. That figure is expected to double by 2030. By then more than 20 per cent of our population will belong to the group called Third Agers.

The Law Commission believes that "the very fact that the consumers concerned are in this age group justifies special protections."

It also points out that a resident who is spry and alert at the time of first contracting into a retirement village will not necessarily remain so.

What are some of the worries that decided the minister to legislate?

The Retirement Villages Association's survey underlines the fact that "as the law now stands, residents are inadequately protected against risk."

When a resident enters into a contract, the risks can fall into three categories:

* A lack of adequate information about the risks of buying into a retirement village.

* A lack of protection for investments.

* Changes to fees and conditions made without consultation or justification

Another risk is that through undercapitalisation during construction or poor administration after a village opens, the resident may not get the services or amenities promised, or may be unable to recover the lump-sum deposit paid.

Common complaints about some villages relate to fixed periodic payments and the high cost of leaving.

This can make residents feel locked into villages where they are unhappy.

Some fear the operator will increase service fees beyond their ability to pay, and worry that they have no say in this.

Another risk is that while the contract may be fair, the operator may not deliver.

Lawyers, medical professionals and the Consumers Institute suggest elderly people think carefully about going to live at a retirement village. They should ask questions such as:

* What is the entry fee and how much do you get back when you sell?

* What happens if the advertised services do not eventuate?

A retirement guide booklet is available in New Zealand.

It lists rest homes, retirement villages and private hospitals nationwide and is available free from agencies such as Age Concern.

What sort of a contract may be entered into by a resident?

In return for providing the use of a lump sum and certain additional payments, the resident is promised an entitlement to the occupation of a home, and certain services and amenities.

The Law Commission suggests that the complexity of such contracts "is probably unmatched by that of any other contract that a consumer may be called upon to adhere to" in a lifetime.

Only rarely will someone enter into such a contract more than once - so there is little chance of learning from experience.

The commission says degree of risk and fairness of such provisions as exit costs are difficult for an unqualified person to assess.

The specialist knowledge required is also possessed by very few lawyers or accountants.

Why is it so complicated?

Confusion arises because so many different types of legal structures are employed in separate retirement villages when a unit is purchased.

This is a reason for bringing all villages into line under one piece of legislation.

Most retirement villages confer on the resident a unit title, or a cross-lease of the unit, or a licence to occupy the unit, or a lease of the unit for life.

More than 60 per cent of retirement villages use the licence to occupy tenure of dwellings. A licence to occupy grants a contractual right to occupy a dwelling.

What do people have to pay?

Villages typically require at least two types of payments from each resident. The first is the lump-sum deposit, the second, service charges or facilities fees.

The deposit is usually refundable in full on termination. The facilities fee, which can be 8 to 27 per cent of the entry payment, is usually gradually written off over three to 10 years by the village owner to cover running costs.

What security is now offered?

The Securities Act 1978 applies to offers of securities to the public.

But the act does exempt from its wide net various types of transactions.

In the Retirement Village Association's survey, only 62 of the 205 retirements villages acknowledged an obligation to satisfy the act's obligations.

Why are new rules needed?

The minister wants all retirement villages to fall under the same protection requirements, which is not the case now. It would be much more useful to lay down a set of rules confined in their application to retirement villages.

Some schemes have been designed with an over-emphasis on cosmetic considerations, or with the intention of ensuring they are beyond the reach of the Securities Act. Some are even in a form shaped by considerations of tax avoidance.

So what do the Government and the minister intend to do?

The minister has said that the system had worked well for a while, "but while we like to think most things improve with age, this wasn't necessarily the case with retirement villages."

She lists her priorities in the New Zealand Positive Ageing Strategy.

Among the "goals and key actions" are enacting legislation that increases the security of publicly provided retirement income into the future, and strengthens legal protection for retirement village residents.

Her goal is to "come away with a bill that offers comprehensive protection of residents of retirement villages, and to have it before the House this year."