Why we need to say sorry to the retirement village residents of New Zealand

“So why do people think we’ve lost our heads?” That was the headline in newspapers across the country last weekend. Full-page adverts were seemingly paid for by 50,000 older-Kiwis who live in retirement villages. They wanted to write “an open letter to the New Zealand public”.

The letter is clear. They’re tired of being made to look “completely stupid” and want to “reject ill-informed commentary that risks undermining the way of life we have chosen”.

We need to say sorry

What I want to say to these 50,000 New Zealanders is I’m sorry we’ve made you feel this way. I’m absolutely certain you are some of the most emotionally intelligent and well-informed people around. You know it’s right for your future social and physical needs to live in a village and you’ve taken the right action. Independence and security outweigh the money issue.

You’re fully aware you don’t own your home and capital gains are made by the operator, not you. You also understand there’s an exit-fee on death of 25-30% of the price of your unit.

It is impossible you were unaware of this, because as you pointed out, there is “mandatory legal advice”.

In your position I would do the same thing, because retirement village living is a great concept. You are accepting the system how it is, because that’s the only practical option.

The problem is, the rest of us don’t want to be in your position.

We need to create structural and legal change in this industry. I don’t want to see my own generation faced with such unbalanced financial choices, in a market that’s grown organically into a co-joined monopoly.

These units are sold at the market price of a home, but come with the rights of renter. As a financial product, it’s a hybrid mess that doesn’t pass any test of consumer fairness. The industry has become entrenched in its right to operate this way. Retirees provide them with free capital and they take the gains. On top of that, we have an exit fee route. Depending on the village, 25-30% of capital is lost, regardless of whether you live there 2 years or 20 years. This cross-subsidisation is the only clause on offer.

Maintaining the status quo is not ok

Your own lawyers, while giving advice, don’t necessarily agree the contract is fair. They’re hog-tied. All they can do is put your personal needs above financial needs, because time isn’t on your side. They have ensured you understood the legal structure and charges.

It is because I know you haven’t lost your heads that I feel I can be straight-up with you. You might not like this point of view, but we have to deal with it front on.

The advert placed in the newspaper and signed by you, is another example of the Retirement Villages Association preying on you. I was horrified by it.

As declared, operators themselves authorised, facilitated and placed the letter for you. Did they fund it? If the residents’ committees funded it, this would have been a useful declaration.

The Retirement Villages Association is an industry body. It’s not representing us as consumers. Quite the contrary they look after the interests of operators and lobby on their behalf.

I find it disingenuous they led you towards this sort of communication without suggesting independent representation. This would have allowed you to make your point, while supporting change for future generations.

This was a cold hard industry stunt that lit up newspaper pages. As residents, you were pawns in that stunt. That isn’t your fault.

It lacked believability and was a clear abuse of power by the Retirement Villages Association to get involved.

Getting residents to react in an emotional way to the contracts you signed and to express concern that your way of life is being attacked, was a bold-faced attempt at condoning the practice of taking both capital gains and large exit fees.

“We can choose to trade capital gains for financial security” was a sentence that irked me in the advert. This isn’t really a choice. It’s the only option available and is standard industry practice. That doesn’t make it right. In the UK I’ve never seen a gains-pinching clause. Their contracts are structured on a leasehold basis. The lifestyle is paid for via clear fees, during or at the end of the occupancy.

“We can choose to pay management fees”. Indeed you can. But losing 30% of your money needs debate. The UK government have looked to limit these to 10%. All markets are of course different and theirs operates more on a pay-as-you-go model. For those with limited cash-flow, deferred payment on death, is more practical. But double-dipping with capital gains plus a hefty exit fee is nothing short of consumer abuse.

When we criticise this industry in whatever capacity we have, as financial writers, lawyers or consumer advocates, you need to grant us the platform to do so, without feeling it undermines your own decisions made in the past. We fully understand you made a practical informed choice and could not wait for change.