Retirement Villages. Statutory Supervisors. 17 December 2012

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1 17 December 2012 Hon Maurice Williamson Minister for Building and Construction Parliament Buildings Wellington Dear Minister Retirement Villages As my term as Retirement Commissioner is coming to an end I have taken the opportunity to revisit the issues identified in the retirement village monitoring reports produced by my office and to provide you with my assessment of the sector. During my time in the Commissioner's role the Retirement Villages Act 2003 has been enacted and implemented. My office has done three monitoring projects on the legislation and run two consultations on variations to the Code of Practice. This work, plus the ongoing queries and correspondence on retirement villages that comes into my office, has provided a considerable amount of information with which to indentify issues for the sector. The purpose of the Act is to provide protection for residents and intending residents, and to enable the development of retirement villages under a legal framework readily understandable by residents, intending residents and operators. Both consumer information and education, and regulation underpin the success ofthe Act. Statutory Supervisors Our first monitoring report was on the role of statutory supervisors. Since then the Securities Trustees and Statutory Supervisors Act 2011 has passed and the Financial Markets Authority now has responsibility for the licensing of statutory supervisors. The conditions applied to the recent issuing of licences to retirement village supervisors have included some of the issues identified in our monitoring report. These related to financial viability of supervisors, succession, training, and record keeping. The issue ofthe concentration of supervisory work within a few firms remains. The next Commissioner and the FMA could work together to ensure that all the issues arising from that monitoring report are addressed or that a review updating that report is undertaken. A key issue is residents' understanding and valuing of the role of the supervisor and having confidence in their independence. It may be that some aspects of the statutory supervisor's role will only be clarified by a review of the Retirement Villages Act. However areas that could Level3, 6911 The Terrace PO Box Wellington 61,14, New Zealand cflri.org.nz financialliteracy.org.nz sorted.org.nz

2 be addressed by best practice are around the provision and quality of information to residents at the village AGMs, and more resource being put into education about their role. Best practice in the recording of complaints and issues by residents to statutory supervisors, combined with an active role in ensuring the operator addresses such complaints would also help. I know there are a few operators who have a poor understanding of the process, and show poor communication skills in their handling of complaints and disputes, and I appreciate this can make it difficult for an active supervisor. Disputes From my experience I believe a revision of the Act should address the disputes provisions. It is not a suitable process for a number of the issues that arise in villages and is seen by some residents as too complex and possibly too expensive. The inclusion ofthe mediation option in the Code of Practice 2008 is of some assistance but more work to make mediation better understood and used more often could be done. It remains a big step from a complaint to a dispute panel hearing. A simpler approach, such as the Tenancy Act disputes system, for one level of dispute is worth investigation. I supported the work of officials in the Ministry of Justice 2008 on Tribunal Reform and thought the retirement village disputes panel may have fitted in their proposed rationalised tribunal system. Their view at that time was that the Retirement Villages Act would need to be reviewed before the disputes provisions could be part of such a system. In the monitoring report on village operators, operators said the disputes panel appointment was seen as a last resort. Operators do not want to be taken to dispute. Some have used delaying tactics that are unhelpful in resolving the issue and I believe may have breached the resident's or their representatives' rights under the Act. Some residents have said the involvement of legal counsel by operators has intimidated them and the proper dispute process was not followed. A few complaints to me have highlighted a problem that where delays occur and the dispute concerns the termination payout, the withholding ofthe full payout can affect the former resident's ability to move into another village or to a residential care facility. I believe some best practice work around complaints systems, recording and the monitoring of outcomes, would be beneficial. Residents need to know their complaints are recorded and taken seriously. The operators' monitoring report identified the need for improved communication skills with residents particularly around complaints, and best practice in the handling of complaints and disputes. Residents The Commission's monitoring work has identified a key factor in the demand for retirement village life is the high value placed by residents on security. With particular respect to financial security, residents have identified as a concern increases in weekly fees (beyond agreed constraints) or additional charges for services previously included in those weekly fees. Residents wanted an assurance of the security they sought in moving to a retirement village.

3 Issues such as affordability of weekly fees} service charges} maintenance and promised or future developments within the village concern them. Improved financial transparency around those charges was wanted. Changes of ownership of their village and sometimes as a result 1 a variety of contracts between residents within a village} concerned some. As with other financial products and contracts} consumer protection is underpinned by effective disclosure} and education of intending and existing residents about the legislation and the contractual nature of retirement village arrangements needs to be ongoing. Some residents think there is a lack of consumer support with the legal and financial advice being too narrow or variable and would like to see more independent support for decision making. Intending residents want to be able to compare information between villages and I have received various suggestions from residents which could be explored. I note there is a similar issue with KiwiSaver which is being addressed by new legislation. Both the operators and the residents} monitoring reports had concerns about the documentation requirements. A review of the Act should examine whether the current provisions are effective in informing and communicating with intending and existing residents. I believe more could be done with plain English documents} the internet} and possibly the use of summary documents. I have received complaints about the advertising of villages} particular the use of language that implies a purchase of a house} not a licence to occupy. This contributes to the misunderstanding some residents have about the nature of a licence to occupy contract in villages. Some difficulties have arisen when a village operator changes the tenure basis oftheir village} typically from a unit title where a resident controls the sale 1 to a licence to occupy village. Some ofthe complaints I have received were from residents wanting better communication} a process which met the Code of Practice requirements and had an early involvement of the statutory supervisor} and possibly in addition some other independent communicator. Related to some residents 1 concerns about the affordability of their weekly costs is the issue of eligibility for the rates rebate. Access is now variable across the country with residents in licence to occupy villages in Auckland and Kapiti now having access to the rebate scheme. This is increasingly an issue other residents want addressed at a national level and is seen as an equity issue. Review of Act issues The formation of several regional Associations of Residents of Retirement Villages has been a positive feature in the sector in the last few years. I appreciate the difficulties for residents in running and financing such organisations and their ability to participate fully in any future review of the Act needs to be specifically considered and supported.

4 Villages that have been affected by significant events, such as the financial difficulties experienced by Crossdale Courts village in Christchurch, provide obvious examples for any review of the Act to examine. Some other areas that monitoring reports have highlighted are the 'cooling off period for intending residents, with concern about whether it is understood and interpreted consistently across the sector. Sector: future challenges I am concerned to ensure the sector remains diverse in terms of village type, size and ownership. I think there is a challenge to adapt business models as we move into a period of an increasingly ageing population but one whose accommodation preferences may differ. Any changes to the Code or the Act need to be examined to ensure they are not creating any potential barriers to the operators of small and not for profit villages. Changes around tenure, such as the Unit Titles Act, need to ensure that variation in the sector is not constrained. There is often complaint of a 'one size fits all' approach of the Act and Code that does not work for, or inhibits different approaches, particularly for smaller operators. I note the changes around the boundary between retirement villages and residential care facilities, with the extension of a licence to occupy model into the residential care environment. More operators are now offering serviced apartments providing residential care services, some known as assisted living suites. This is another area where intending residents need education and information. Knowing whether you can access any entitlement to publicly funded care and support services in a village is an important information issue. I note the Retirement Villages Association has recently produced a guide for its members on this trend in residential care provision, particularly around payments for the accommodation portion. Regulation and Enforcement One approach that may address some of the issues I have discussed is to have more education with an emphasis on best practice information, for example, in terms of how to run complaints facilities, and improving communication skills amongst village operator/managers to deal with complaints. The Retirement Villages Association is I believe supportive ofthis approach. A further approach is to increase enforcement of compliance with the Act and act on complaints of breaches of the Code of Practice. Some residents want to see an audit process for each village to ensure they are complying with the Act. In part I think this view has arisen because the number of agencies and their different roles involved in the regulation of the sector can be confusing for residents. There is potential with the new Ministry structure to resolve this confusion. When the Act was passed I think it was expected that the sector would be largely self regulating. I do not think this approach is appropriate anymore. My concern is not so much that there are different agencies involved in regulation, but rather that there needs to be leadership in the sector and that the leadership is driven by one resourced agency. For

5 example, the Retirement Commissioner's role was never resourced to enable it to take leadership on any of the issues that we might establish in our monitoring work on the effectiveness of the Act. While there are some issues that might be addressed by the long promised review ofthe Act, others could be resolved if one agency had a leadership role within government for the retirement village sector. I believe this role now belongs with the new Ministry of Business, Innovation and Employment. Yours sincerely Diana Crossan Retirement Commissioner cc. Greg Patchell MBIE greg.patchell@med.govt.nz Meg Martin MBIE meg.martin@med.govt.nz Gaye Searancke MBIE gaye.searancke@med.govt.nz