Retirement village loans to residents can indicate financial need

A report by the government’s retirement village monitoring agency has found 40% of village operators provide loans to residents but that there has been no significant increase in loans being sought.

The loans generally cover shortfalls in entry payments to those wishing to buy into or transfer within a village, or to existing residents to cover accrued weekly fees.

The office of the Retirement Commissioner, the Commission for Financial Capability (CFFC), monitors the effects of the Retirement Villages Act and undertakes an annual report into an aspect of village operations.

Retirement Commissioner Jane Wrightson says her office chose to study operator financial assistance to residents in light of falling interest rates and potential pressures on retirees’ income from savings. 

“While it is positive that operators are willing to help residents gain access to a village and meet their ongoing costs, it’s important that those thinking of moving into a village carefully assess the financial implications before they make the decision,” said Wrightson.

“This study was done pre-COVID-19, and it’s likely there will be  an increasing degree of financial assistance from operators to residents in the future. Most loans were to assist entry into a village. However future costs to getting older, for items such as hearing aids and glasses, mean that intending residents need to consider how their financial situation might change over time.”

Most people enter a village by buying a license to occupy a unit. The cost of the license is refunded, less a management fee, when the resident vacates the unit. The CFFC found that if a village operator provides financial assistance, the loan was usually interest free and repaid from the proceeds of the resident’s license to occupy after they vacated. A small percentage of operators charged interest, and most were found to be complying with the Credit Contracts and Consumer Finance Act 2003.

Overall, the incidence of lending was low relative to the number of residents in villages and the terms were not onerous. However, the report did identify some areas worthy of more consideration, including greater consistency in terminology and documentation across operators, and the potential need for more access to, and promotion of independent financial advice for residents.

The CFFC has submitted its report to the Minister who oversees the sector, Hon. Kris Faafoi.