commission for financial capability...project | cffc financial services provided by operators report...

REPORT–JUNE2020

CommissionforFinancialCapabilityMonitoringtheEffectsoftheRetirement

VillagesAct(2003):FinancialServicesProvidedbyOperators

Report

PreparedbyMobiusResearchandStrategyLtd.

PROJECT|CFFCFinancialServicesProvidedbyOperatorsReport

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Mobius Research and Strategy Ltd. Strictly confidential.

TableofContents

1: ExecutiveSummary.....................................................................................................................................21.1 Backgroundandobjectives....................................................................................................................21.2 Approach...............................................................................................................................................21.3 Summaryofkeyfindings.......................................................................................................................3

1.3.1 Overall....................................................................................................................................................31.3.2 Otherkeyfindings..................................................................................................................................4

2: Projectbackgroundandobjectives..............................................................................................................5

3: Approach....................................................................................................................................................73.1 Samplestructure...................................................................................................................................73.2 Backgroundresearch.............................................................................................................................7

4: Researchfindings........................................................................................................................................84.1 Typesoffinancialassistancebeingoffered............................................................................................8

4.1.1 Loanstocovertransferswithinvillages.................................................................................................94.1.2 Short-termloanstocoverashortfallinentrypayments(bridgingfinance)........................................104.1.3 Hardshiploans–deferralorpartorallofweeklyfees........................................................................104.1.4 Hardshiploans(#2)–one-offlumpsumloanstocoveraspecificneed..............................................104.1.5 Lumpsumonentry/short-fallonentry................................................................................................114.1.6 Advanceontermination.......................................................................................................................11

4.2 Theextent,natureandcredittermsoffinancialassistanceprovidedbyoperators..............................114.2.1 Thenumberofloans...........................................................................................................................114.2.2 Loanamounts.......................................................................................................................................124.2.3 Interestratescharged..........................................................................................................................124.2.4 Defaultinterestrates...........................................................................................................................134.2.5 Loansetoff...........................................................................................................................................134.2.6 FSPRregistration..................................................................................................................................134.2.7 Onerousterms.....................................................................................................................................14

4.3 Totalloanbalances..............................................................................................................................144.4 Theroleofoperatorsinprovidingfinancialassistance.........................................................................144.5 Waysofadvertising,representingorinformingoffinancialassistance:...............................................144.6 Processesofferedbyoperatorswhenoffering/providingfinancialassistance......................................154.7 SystemsinplacetocomplywiththeCreditContractsandConsumerFinanceAct................................154.8 Theinvolvement/practicesofStatutorySupervisors............................................................................164.9 Theexperiencesofresidentsreceivingfinancialassistance..................................................................164.10Otherquestions...................................................................................................................................17

4.10.1 Riskstotheindustryofthenumberofoperatorsofferingfinancialassistance................................174.10.2 Theroleoftheexistingregulatoryregime........................................................................................174.10.3 Operator’scompliancecostsandbarrierstoprovidingfinancialassistance.....................................184.10.4 OtherActrelatedmatters..................................................................................................................18

AppendixA:SummaryofkeyfindingsfromthePWCRVAsurvey..................................................................19


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1: ExecutiveSummary1.1 BackgroundandobjectivesTheoverallobjectiveofthisprojectwastounderstandtheextentofoperator lendingpracticesandprovisionoffinancial assistance to intending residents and residents of retirement villages. Specific objectives includedunderstanding:

• Thedifferenttypesoffinancialassistanceoperatorsadvertiseorprovide• The ways in which operators are advertising, representing or informing intending residents and residents

abouttheavailabilityoffinancialassistanceorservicesinthenatureoffinancialassistance• The proportion of financial assistance that is in the form of loans to cover shortfalls in entry

payments/transfersituations,orprogressiveloanscoveringaccruedweeklyfees• The amount of financial assistance being provided, loan sizes and the approximate number of intending

residentsandresidentsreceivingformsoffinancialassistance• Themannerinwhichintendingresidentsandresidentspresentthemselvesiftheywishtoavailthemselvesof

financialassistance–andwhethertherearerecurringcircumstances• Theprocessesoperatorsusewhenassessing,offeringandadministeringfinancialassistance–andthesystems

theyusetocomplywiththeCreditContractsandConsumerFinanceAct2003• ThedisputeresolutionschemesusedtocomplywiththeFinancialServiceProvidersAct• Thetermsoffinancialassistanceoffered• TheinvolvementorpracticesadoptedbyStatutorySupervisors.

1.2 ApproachThiswas a qualitative project, comprising a total ofN=41 in-depth interviews with amix of retirement villageindustry‘participants’andwiderstakeholdersasfollows:• N=4interviewswithmanagersandstaffmembersresponsibleforstatutorysupervisionacrossfourLicensed

StatutorySupervisororganisations(someinterviewswerewithmorethanoneperson)• N=4 interviews with industry stakeholders – the Financial Markets Authority (FMA), and the Retirement

VillagesAssociationofNewZealand(RVA)• N=16interviewswithoperatorrepresentatives–inmostcasesthesewereattheCEO/CE,CFO,COOorChief

Legal Counsel level – and represented amix of larger ‘group’ retirement villages, independent villages andcharitable trusts. In some instances these interviewswere attended by two operator representatives (e.g.CEOandCFOorCOOandLegalCounsel)

• N=17interviewswithresidentsofretirementvillages.Interviewsrangedfromonetotwohoursinduration(mostwereonehour).Interviewswereamixofface-to-faceandtelephone(ifoutsideofAuckland).InterviewswereconductedduringJanuaryandApril2020.Thefollowingdocumentswerealsoreviewedaspartofthisproject:• TheRetirementVillagesAct(2003)• RetirementVillagesCodeofPractice2008(variationsincludedApril2017)• Examplesofdisclosurestatements


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• LoansandfinancialassistanceprovidedbyVillageoperatorstoresidents–themesandtrends,PWC(preparedfortheRVAJanuary2020)

1.3 Summaryofkeyfindings

1.3.1 OverallOverall this study had found that, at present, the incidence of financial assistance being offered to intendingresidentsandresidentsofretirementvillagesislow(notethat‘low’inthiscontextreferstothenumberofloansordeferralsrelativetothetotalnumberofresidentsinNewZealandretirementvillages).Themajorityofoperatorsproviding financialassistanceareeithercomplyingwiththerequirementsof theCreditContractsandConsumerFinanceAct(2003)(CCCFA)andtheFinancialServicesProviders(RegistrationandDisputeResolution)Act(2008)(FSPA)orarenotrequiredto(i.e.thefinancialservices/assistancetheyprovidearenon-interestbearing).AnanalysisbyoneStatutorySupervisorconductedaspartofthisstudyfoundsixinstancesofnon-compliancewiththeFSPAandthesehavesincebeenfollowedupon. Forfinancialassistanceprovidedwhich is interestbearing,theCCCFAandtheFSPAprovideclearguidelinesregardingoperatorcompliancerequirementsandmostoperatorsareawareoftheirobligations.The initiation of this study by the Commission resulted in action being taken by Statutory Supervisors toinvestigatetheincidenceofloansbeingmadebytheoperatorstheysupervise(wheretherearemultipleoperatorsbeingsupervised)andalsoresultedinaseparatestudycommissionedbytheRetirementVillagesAssociation(RVA)toinvestigatetheextentofloansbeingprovidedandthecredittermsoffered.Upuntilthispointtherehadbeennoformalexplorationoftheextent,rangeandtermsofanyloansorotherfinancialassistancebeingprovided.Allofthiscombinedworkhasprovidedanimportantbenchmarkforfuturetracking.Whilethisstudyhasfoundtheincidenceoffinancialassistancetobelow,andinmostcasesthetermsofferedtoresidentstobenon-onerous,ithasalsoraisedanumberofissuesthatmayrequirefurtherconsideration.Theseinclude:• Theuseoftheword ‘deferral’byoperatorstodescribefinancialassistanceratherthantheuseoftheword

‘loan’or ‘financialassistance’. Thismayhave implications for theway inwhich financialassistance isbeingreportedand interpretationsofwhatmaybe required i.e. information indisclosure statements, supportingdocumentation required from residents, documentation provided to residents etc. This raises questionsaroundwhetherthereshouldbemoreconsistentdisclosureoffinancialassistancearrangementseveniftheseareinterestfreetherearenoCCCFAcompliancerequirements

• The fact that there is no consistency across operators in any documentation being prepared/provided –includingstandardisedarrangementlettersacrosstheindustry

• ThefactthatonlysomeoperatorsdisclosethedetailsofloanstoresidentsinquarterlyreportingtoStatutorySupervisors(andthatatpresentthereisnospecificrequirementtodoso)

• The fact that there is no disclosure of the total amount of deferred fees that will be balanced with thesettlementonexist,and

• Thepotentialneed formoreaccess to,andpromotionof independent financialadvice for residents–onceagainthereisnoconsistentdocumentationprovidedbyoperatorsofferingfinancialassistanceregardingthestepsresidentsshouldbetakingbeforemakingafinaldecision(irrespectiveoftheimmediatefinancialneedthatsomeresidentsface).


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1.3.2 Otherkeyfindings• Operatorsdonotreportasignificantincreaseinresidentsrequiringfinancialassistanceoverthelastseveral

years. There is some anecdotal indication however that financial assistance requirements are likely toincreaseinthefuture,asintendingresidentsmaynothavethefundsrequiredtoenteravillage(i.e.becauseofpossiblelowerlevelsofhomeownership/equityetc.).Inthisrespect,theRVAhasreportedthattheyhavebeenencouragingoperatorstoconsiderdifferentRV‘models’movingforward.

• There are no obvious patterns evident in terms of the financial assistance behaviour and practices across

operators:

• There are differences in the types of loans offered that are not based around any specific operatorcharacteristics(e.g.sizeetc.)–otherthanfornotforprofitvillageswhicharemorelikelytoofferfinancialassistanceintheformofdeferredweeklyfeesandtochargenointerest

• Theprofileof‘residents’ismorelikelytoimpactonthetypeoffinancialassistanceofferedi.e.particularlyintermsofdeferredfees–andthiscanvaryacrossvillages(foroneoperator).

• Themostcommontypesofloansarefortransfersandforloansonentry(bridgingfinance–morelikelytobeinterestbearing)butsomeoperatorshavemoredeferrals,somemoretransfers,somewillnotofferbridgingfinanceasamatterofpolicyetc.

• Mostoperatorsdonotcurrentlyhaveanyspecificcriteriatheyapplyintermsofminimumormaximumloan

sizes–andinterestchargedvariesbetweenoperators,withmostchargingnonebecause(1)ofthecostsandtimeofcomplianceand(2)thefactthatfinancialassistanceisnotconsideredtobecorebusinessandisonlyoffered tomeetan immediateneedofa resident toensure theycancontinue to live inavillage (i.e.manyoperatorsseethisasofferingahelpinghand).

• Manyoperatorsappearreluctanttousetheterm‘loan’ insteadreferringto ‘deferrals’. Manysaythatthey

havenooptionbuttoprovidefinancialassistance–andallinstancesitisdonetomeetaveryrealneed–wefoundnoevidenceof‘frivolous’loans.Noresidentsaredeniedfinancialassistancewherethereisagenuineneed identified. There is also no evidence to suggest that there are any recurring requests for financialassistancebyindividualresidents.

• Onthewhole,residentsreceivingfinancialassistancehaverequiredthisinordertoremainintheirvillage(or

toenteravillage)–andtherehavebeennoformalcomplaintsmaderegardingthetermsofthisassistance.Fromaresidentperspective,inmostinstances,nomoneychangeshands:

o Thetransactionforresidentsappearsrelativelystraightforwardandformosthasnoimpactontheir

day-to-daylifeo Formosttheseareveryprivatetransactionso Transactionsaresettledaftertheyexit.

• Thereissomeevidencehoweverofsomeminorconfusionoversometerminologyinloanagreements.


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2: ProjectbackgroundandobjectivesAtthetimeofcommencingthisprojecttherewere420registeredretirementvillagesinNewZealand,includingasmall number still under construction. One of the roles of the Commission for Financial Capability (theCommission) is tomonitor the effects of the Retirement Villages Act 2003 (the Act), including regulations andcodes of practicemade under the Act. This includes assessing the effects of the Act, regulations, and code ofpractice, as they apply to the functions and duties of operators, and any involvement of Statutory SupervisorsappointedforthepurposesoftheAct,whenofferingorprovidingfinancialassistanceorservicesinthenatureoffinancialassistancetoresidentsorintendingresidents.TheCommissionwishedtoexerciseitsmonitoringfunctionto understand the extent of operator lending practices and provision of financial assistance, particularly in thecontextoffallinginterestratesandpotentialpressuresonretireeincomesfromsavingsincome.TheCommissionunderstandsthat:• Differentoperatorsconductentryinterviewsandarrangementswithintendingresidentsindifferentwaysas

an additional precautionary measure before an intending resident seeks independent legal advice. Someoperatorsmayproactivelyalertresidentstofinancialimplicationsorrepresentpossiblefinancialassistancetoresidentsincertainsituations

• Someoperatorsmaynotpatentlyadvertisefinancialassistanceinthemarketplace,althoughsomemaydosothroughsalespeople,villagemanagementandinotherdiscreetways

• Operators or statutory supervisors will, at some AGMs, reiterate the availability of financial assistance toresidentsexperiencingfinancialdifficulties.

Around 2016 the Commission was asked to provide recommendations to MBIE regarding a request by theRetirementVillagesAssociationonbehalfofitsoperatormembers,foranexemptionfromneedingtoregistertobelong to a dispute resolution scheme requiredunder the Financial ServiceProviders (Registration andDisputeResolution)Act2008.LegaladvisorsfortheRVAindicatedatthetimethatthereweretwomaintypesoffinancialassistanceprovidedbyoperators,bothinthenatureofacreditcontract:

• Loanstocovershortfallsinentrypayments• Progressiveloanstocoveraccruedweeklyfees.

Operators of retirement villages provide financial services, as defined in the Financial Service Providers(RegistrationandDisputeResolution)Act2008,whentheyarecreditorsunderacreditcontract.AbusinessthatofferscredittoconsumersisrequiredtomeetobligationsundertheCreditContractsandConsumerFinanceAct2003.TheCommerceCommissionremindedvillageoperatorsin2016thattheymustfollowlendingrequirementswhenofferingcredittoresidentsandthatresidentsgetalloftheinformationthattheyneed.Regulation33(2)oftheRetirementVillages(General)Regulations2006requiresadisclosurestatementtosetoutthenatureoffinancialassistanceandthetermsonwhichresidentsmayreceiveit.Theregulationapplieswhen

• Intendingresidentshavebeengivenadisclosurestatementand• Anadvertisementindicatingresidentscouldreceivefinancialassistancemayhavebeenpublishedwithin

6monthsofreceivingthedisclosurestatement.Theeffectofregulation15 is thatadisclosurestatementmustclarify ifaresident’s interest inaresidentialunitincludestherighttomortgageorotherwiseborrowagainsttheresident’sinterestintheunit.TheCommissionidentifiedarangeofresearchquestionsofinterest,including:


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1. Whatarethedifferenttypesoffinancialassistanceoperatorsadvertiseorprovide?2. How are operators advertising, representing or informing intending residents and residents about the

availabilityoffinancialassistanceorservicesinthenatureoffinancialassistance?3. Approximately what proportion of financial assistance is in the form of loans to cover shortfalls in entry

payments/transfersituations,orprogressiveloanscoveringaccruedweeklyfees?4. Howmuchfinancialassistanceareoperatorsprovidingtointendingresidentsorresidents: theapproximate

numberofintendingresidentsandresidentsreceivingformsoffinancialassistance,therangeofloansizes?5. Howdointendingresidentsorresidentstypicallypresenttooperatorswhentheywishtoavailthemselvesof

theopportunityforfinancialassistance.Arethereanyrecurringcircumstancesoperatorsseewhenresidentsseekfinancialassistance?

6. What processes do operators use assessing, offering and administering financial assistance to intendingresidents or residents? What systems do operators use to comply with Credit Contracts and ConsumerFinanceAct2003requirements?

7. WhatdisputeresolutionschemesoperatorsbelongtoforthepurposesofcomplyingwiththeFinancialServiceProvidersAct?

8. What terms of financial assistance do operators offer, what credit terms, interest rates and how they arechargedandrecouped?

9. Whatinvolvementorpracticesareadoptedbystatutorysupervisorsforoverseeing:a. Thelawfulnessofoperatorprocesseswhenprovidingfinancialassistance;andb. Thatthefinancialinterestsofresidentsareprotected?

Thisworkalsoaddressedthefollowing:• What if any actual or perceived risks to the industry exist from the number of operators offering financial

assistance?• Whether the existing RV regulatory regime is ensuring intending residents’ and residents’ interests who

consider or agree to financial assistance, are financially protected through ‘external oversight of theconditionsofentryintoandcontinuingoperationsofretirementvillages’(section3)orwhetherthereareanygapsofmattersthatcouldbeimproved?

• Whatistheoperator’scompliancecostsinrelationtoprovidingfinancialassistanceandaretherebarrierstoprovidingfinancialassistance?

• What are the experiences of residents who have received financial assistance regarding how well theyunderstandthefinancialassistancearrangementstheyhaveinplace?

• Anyotheraspectsof theAct,RegulationsorCodeparties interviewedbelievecouldbe improved toenablemoreeffectivefinancialassistancebyoperators.

Thisreportoutlinesthefindingsfromthisresearch.


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3: Approach

3.1 SamplestructureThiswas a qualitative project, comprising a total ofN=41 in-depth interviews with amix of retirement villageindustry‘participants’andwiderstakeholdersasfollows:• N=4interviewswithmanagersandstaffmembersresponsibleforstatutorysupervisionacrossfourLicensed

StatutorySupervisororganisations(someinterviewswerewithmorethanoneperson)• N=4 interviews with industry stakeholders – the Financial Markets Authority (FMA), and the Retirement

VillagesAssociationofNewZealand(RVA)• N=16interviewswithoperatorrepresentatives–inmostcasesthesewereattheCEO/CE,CFO,COOorChief

Legal Counsel level – and represented amix of larger ‘group’ retirement villages, independent villages andcharitable trusts. In some instances these interviewswere attended by twooperator representatives (e.g.CEOandCFOorCOOandLegalCounsel)

• N=17interviewswithresidentsofretirementvillages.Interviewsrangedfromonetotwohoursinduration(mostwereonehour).Interviewswereamixofface-to-faceandtelephone(ifoutsideofAuckland).InterviewswereconductedduringJanuaryandApril2020.Researchparticipantsand/ororganisationstobeapproachedandinvitedtotakepartwereeithersuggestedbytheCommissionoridentifiedthroughasnowballingapproachduringinterviewswithotherparticipants.

3.2 BackgroundresearchThefollowingdocumentswerealsoreviewedaspartofthisproject:• TheRetirementVillagesAct(2003)• RetirementVillagesCodeofPractice2008(variationsincludedApril2017)• Examplesofdisclosurestatements• LoansandfinancialassistanceprovidedbyVillageoperatorstoresidents–

themesandtrends,PWC(preparedfortheRVAJanuary2020)****When they became aware that the Commission intended to undertake this project, the Retirement VillagesAssociationofNewZealand(RVA)commissionedPriceWaterhouseCoopers (PWC)toundertakeasurveyofthefinancial assistancebeingprovided to residents by theirmembers. TheRVAacknowledged that theyhadbeenunsureastohowwidespreadthiswas.TheRVAkindlyprovidedacopyoftheirresearch,whichwehavebeenabletoquotethroughoutthisreport.Overall,findingsfromtheRVAresearchandthefindingsfromtheCommission’sprojectaregenerallyconsistent.


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4: Researchfindings

4.1 TypesoffinancialassistancebeingofferedAcross the 16 operators interviewed as part of this project, most offered financial assistance in some form tointending residents and residents. However,most referred to the financial assistance they provide andwhereinterest is not charged, as a ‘deferral’ rather than as a loan. Deferralsweremore likely to bewhere financialassistanceisofferedtocoveratransferwithinavillageorwherethereisashortfallonentrytothevillage.WenotethatthereportpreparedbyPWConbehalfoftheRVAreferredto‘loans’intheirquestionsandsoit isunclearwhether theparticipatingoperators took intoaccount the financial assistance theyoffer in the formof‘deferrals’,intheirresponses.ThePWCreportidentifiedthat40.48%ofparticipatingoperatorsprovideloanstoresidentsandthat59.42%donot.Inthiscurrentstudy,conductedonbehalfoftheCommission,itwasfoundthatmostoperatorsdoinfactprovidesomeformoffinancialassistance,includingloansanddeferrals.The40.48%ofoperators in thePWCreportmaynot, in fact, includedeferrals for someoperators.Note thatoperators clearlyidentifieddeferrals1beingdifferentfromloansduringinterviewsforthiscurrentstudy.Thisstudyhasidentifiedsixtypesoffinancialservicesprovidedbyoperators.Thesearepresentedinapproximateorderofincidence,althoughthisvariesacrossoperators.Someoperatorsreportprovidingsomeformsoffinancialservicesbutnotothers.Thisincludesasamatterofpolicy(i.e.somedonotofferbridgingfinanceonentry)butcan also be dependent on the profile of different villages (i.e. the residents in some villages aremore likely torequirehardship loans/deferrals ofweekly fees than inother villages– and this can include villageswithinoneoperatororganisation).There were no strong patterns evident in the types of financial assistance offered by smaller operators,independent villages and large operators. This is generally supported by the RVA report, which analyseddifferencesbetweennotforprofit,forprofit,smallandlargeoperators.Thesixtypesoffinancialservicesidentifiedwere:1. Loanstocovertransferswithinvillagesi.e.betweenindependentunitsandservicedunits/caresuites2. Short-termloanstocovershortfallsinentrypaymentsi.e.bridgingfinance3. Hardshiploans–deferralofpartorallofweeklyfees4. Hardshiploans(#2)–one-offlumpsumloantocoveraspecificneed5. Lumpsumonentry/short-fallonentry6. AdvanceonterminationThisisgenerallyconsistentwiththefindingsinthePWCresearchconductedonbehalfoftheRVA,whichidentifiedthemostcommontypeoffinancialservicesprovidedtobe“assistancewiththeadvance/capitalsum”which(afterconfirmationwithPWCandtheRVA)includestransferswithinvillages(aswellasloanstocovershortfallsinentrypayments).

1Fromanaccountingperspective,deferralaccountingreferstoentriesofpaymentsafterthey’vemade.Unlikeaccrualaccounting,deferralaccountingdoesnotcountrevenueuntilthefollowingaccountingperiod,soitwouldbeconsideredaliabilityonafinancialstatementduringtheperiodinwhichaproductorservicewaspaidfor.


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RVAreport–mostcommontypesoffinancialservices/assistance• AssistancewithORAadvance/capitalsum(53.57%)• Assistancewithweeklyfee/otherregularpayments(14.29%)• Loansforpersonalreasons(14.29%)• Bridgingfinancewhilehouseissoldorsomeotherevent(10.71%)• Noloansrequestedfromresidentsthusfar(3.57%)• Interestfee–fortransfersasabove.Interestbearing–assistancewithweeklyoutgoings(3.57%)

TheRVAreportalsoidentifieddifferencesinreasonsfor loansbetweennotforprofitoperators,smalloperatorsandlargeoperators.Differencesoverallwerenotsignificantbasedonthesecriteriaalthoughnotforprofitsandsmalloperatorsweremorelikelytoreportprovidingloansfor‘personalreasons’comparedtoforprofitandlargeroperators. NotforProfit

OperatorsForProfitOperators

SmallOperators

Largeoperators

AssistancewithORAadvance/capitalsum 50% 55.56% 57.89% 40%Assistance with weekly fee/other regularpayments

10% 16.67% 15.79% 0%

Loansforpersonalreasons 20% 11.1% 21.05% 0%Bridging finance while house is sold orsomeotherevent

10% 11.1% 0% 40%

Noloansrequestedfromresidentsthusfar 10% 0% 5.26% 0%Interest fee – for transfers as above.Interest bearing – assistance with weeklyoutgoings

0% 5.56% 0% 20%

Sections4.1.1-5.1.6provideabriefdescriptionofeachofthe6typesoffinancialassistanceprovided.

4.1.1 LoanstocovertransferswithinvillagesMost (but not all) operators provided examples of this type of financial assistance. This type of financialassistanceoccurswhenaresidentneedstotransferfromanindependentunittoaservicedunitoracaresuiteandthere isa shortfall in theamount they require to transfer (i.e. theoriginal costof their independentunit isnotenough to cover the cost of their newunit/accommodation). This typeof loan can alsooccurwhenonepartyremainsintheintheindependentunitwhiletheothermovesintoacaresuite.Theoperatorsinterviewedaspartofthisprojectreferredtothistypeoffinancialassistanceasa‘deferral’ratherthan a loan, because they are not interest bearing – “this is not a loan because no cash changes hands”. Theoperatorsinterviewedalsoreportedthattherewouldbenodoublingupofthedeferredmanagementfee(DMF)intheseinstances,althoughwenotethatoneStatutorySupervisorreportedhavingreceivedcontactfromaresidentwhosaidtheyhadbeenchargedaDMFtwice.


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4.1.2 Short-termloanstocoverashortfallinentrypayments(bridgingfinance)Theseloansarebridgingfinanceloans(sometimesreferredtoasearlyoccupancy)whereanintendingresidenthasnotyetsoldtheirhome(orthefundsaretiedupforsomereason)and/ortheyneedtomovefromtheirownhomestraightaway.Theseloansaremorelikelytobeinterestbearing,butnotinallinstances.Thelengthoftimeforthesetypesofloansvaries-someexampleswereprovidedof loansbeingupto5-6months. Someoftheoperatorswhoofferthesetypesof loansreportnotbeingoverlyconcernedabouttimeframesgiventhattheloanwillbesettledinarelativelyshort timeperiod (i.e. theassumption is that thehousewill selleventuallyandthe fundswillbecomeavailable).Therewasnolimitspecifiedfortheloanamount.Oneexamplewasprovidedbyanoperatorofabridgingfinanceloanof$750,000.Someoperatorsreportedcarryingoutformalduediligence,butotherssaidtheydonot.Onelargeoperatorreportedthatnosecurityisrequired(andthisappearstobethenorm).

4.1.3 Hardshiploans–deferralorpartorallofweeklyfeesThethirdtypeofloanidentifiedishardshiploanswherethereisadeferralofallorpartoftheweeklyfees.Thesearelesslikelytobeinterestbearing,withmostoperatorsinterviewedreportingthatnointerestischarged.Examplesofthereasonsforthesetypesofloansinclude:• Thattheresidenthasnotadequatelybudgeted.Anecdotally,someoperatorssaidthatthiscanbewomenleft

on their own who may not have good financial management skills (i.e. their husbands looked after thefinances),or

• Whereweeklyfeeshaveincreased(althoughnotethattherehasbeenanincreasingtrendtowardsfixedfees).

Oneoperatorwho reported that theyoffer thisoption said that it isoffered if residentswouldprefer to spendtheirmoneyelsewhere(e.g.eatingout,travelling,enjoyinglife).Formostoperatorshoweverthesearehardshiploansarisingoutofnecessity.

4.1.4 Hardshiploans(#2)–one-offlumpsumloanstocoveraspecificneedAnother typeof hardship loan identified iswhere the resident requires a lump sumamount to cover a specificneed e.g. the resident requires a hearing aid or dentures or the resident has had a car accident and requiresadditional funds to replace thevehicle. Therewere someexamplesofhardship loans thatwereprovidedasaresultoftheChristchurchearthquake.Thesetypesofloanstendtoberareandwerealsotheonlytypesofloanswhereoperatorsprovidedexamplesofhavingdeclinedtherequestsofsomeresidents.Theexamplesgivenfordecliningthesetypesofloanswerewherearesidenthadwantedtopurchaseacar forhisson,orwherearesidentrequesteda loanbuthad justrecentlypurchasedabrandnewcarforcash.These types of loans are more likely to be interest bearing, and are more likely to be relatively small (under$20,000,andoftenunder$10,000).


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4.1.5 Lumpsumonentry/short-fallonentryLump sum loans on entry,where there is a shortfall in the capital sum required are relatively rare at present,althoughoperatorsandtheRVAreportthatthisislikelytobeanincreasingneedinthefuturewithlowerlevelsofhomeownershipandequityamongolderpeople. Theseare less likely tobe interestbearingandarealsomostoftenreferredtobyoperatorsas‘deferrals’,ordiscountsonentry,withthebalancedeferreduntilsettlement.

4.1.6 AdvanceonterminationThesearerare.

4.2 Theextent,natureandcredittermsoffinancialassistanceprovidedbyoperators4.2.1 ThenumberofloansThenumberofloansprovidedbyoperatorstointendingresidentsandresidentsiscurrentlylowoverall.By‘low’herewearereferringtothenumberofloansofferedrelativetothenumberofresidentscurrentlyinretirementvillagesacrossNewZealand.InterviewfeedbackfromoperatorsandStatutorySupervisorsaspartofthiscurrentstudyprovidedthefollowingexamples:• Oneoperatorreported6loansoutof1000householdsfordeferredweeklyfees

• Oneoperatorwith6villagesreported12-15transferdeferralsperyear,with30-40transferdeferralscarriedatanyonetime,allinterestfree

• One operator with 35 villages reported 23 current loans out of 1500 households, with 19 being interestbearing

• Oneoperatorwith7villagesreportednoloans

• Oneindependentvillagereportednoloansinthelast7years

• Oneoperatorwith2villagesreported10-12loans,allinterestfree

• Oneoperatorwith25+villagesreportedapproximately1%withloansandtheStatutorySupervisorreportedapproximately1-2loanssettledeverytwoweeks(thisislikelytoincludeshort-termbridgingfinanceloans).

ThisisconsistentwiththefindingsintheRVAresearch,whichreportsthatonaveragethereare“fewerthanthreeresidentloansperoperator”.ThisisalsosupportedbyanalysisundertakenbyCovenantTrusteesLimitedaspartofthiscurrentstudyonbehalfoftheCommission.

Aspartofthisproject(andpriortoaninterviewwiththemtakingplace),CovenantTrusteesLimitedundertookananalysisofsettlementssince2003to identifytheextenttowhichloansorfinancialassistancehadbeeninplace(andthatwererequiredtobedealtwithaspartofthesettlementprocess).


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Since 2003, Covenant identified 31 loans that had been settled across the villages that they act as StatutorySupervisorfor(approximatelythreequartersofallretirementvillages).Ofthese,sevenhadbeensettledinFY20andmosthadbeensettledinthelastfewyears.Thisdoesnotnecessarilymeanthattherehavebeenmoreloansprovidedinthelastfewyears,butmaybearesultofmoreloanshavingbeenofferedoveranumberofyearsthatare now requiring settlement (i.e. that prior to, say a decade ago, fewer loans overall were required to beprovided).

4.2.2 LoanamountsThefollowingtableshowsthelowest,highestandaverageloanamountacrossthevillagessupervisedbyCovenantTrusteesLimitedandsettledsince2003.Notethatduringaninterviewwithanoperatoraspartofthisproject,abridgingfinanceloanof$750,000wasidentified.Settledsince2003 Loanamount

Lowestloanamount $9,000Highestloanamount $345,000Averageloanamount $87,581.34

4.2.3 InterestrateschargedThefollowingtableshowsthelowest,highestandaverageinterestrateamountacrossthevillagessupervisedbyCovenant Trustees Limited and settled since 2003. Note that during interviews with operators as part of thisproject,mostsaidtheinterestchargewas0%,and6-7%wasthehighestinterestamountquoted.Itwasreportedbymostoperatorsthatnointerestischargedfortransfers,deferralsuponentryorfordeferredweeklyfees.Settledsince2003 Interestrate

Lowestinterestrate 0%Highestinterestrate 7%Averageinterestrate 4.78%Oneoperatorprovidedspecificdocumentationregardingloansduringaninterviewaspartofthisproject.Fortheloanstheyprovidethatareinterest-bearing,theychargeinterestatthecurrentBNZStandardHomeLoanFloatingRateor suchotherBNZ floating rate theydetermine,with interest renewableeveryquarter. Residentsarenotrequiredtomakeanyinterestpaymentsthroughoutthetermoftheloan,andtheinterestwillaccruetotheexitpaymentdate,beingtherelicensingoftheunitorthebuybackdateiftheunitisnotrelicensedwithin6monthsofthe terminationdate. Alloutstandingamountsof the loan (principleand interest)willbe repayableon theexitpaymentdate,andwillbedeductedfromtheterminationproceeds.Thedocumentationstatesthattheloanmayberepaidatanytimeinmultiplesof$1000totheStatutorySupervisor’sbankaccount.


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4.2.4 DefaultinterestratesCovenant’sanalysisfounddefaultinterestsratesrangingfrom0%-12%.Settledsince2003 Defaultinterestrate

Lowestinterestrate 0%Highestinterestrate 12%(2loans)Averageinterestrate 6.25%ThefollowinginterestrateswereidentifiedinthePWCreportonbehalfoftheRVA.Halfofoperatorsreportingchargingnointerest.Interestratecharged:0%2-4%4-6%6-8%10-12%

Percentageofoperators:50%14.29%28.57%3.57%3.57%

4.2.5 LoansetoffOfthe31loansidentifiedbyCovenant,19weresetoffagainsttheORA.Settledsince2003 Numberofloans

SetofagainstORA 19Nosetoff(notdocumented) 3Notmentioned 9

4.2.6 FSPRregistrationAcross the 31 loans identified by Covenant, the providers of 12 loans had FSPR registration. 19 were notregistered,andoftheseCovenantidentifiedthatfor6oftheloans,theoperator(s)shouldhavebeen.Covenantreportthattheyhavesincefollowedupwiththeseoperators.NotethattheRVAstudyidentifiedthreeoperatorswhowereofferinginterest-bearingloansbutwerenoteCCCFAcompliant.Settledsince2003 FSPRRegistration

Registered 12NotfoundonFSPR 19(includes6interestbearingloans)


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4.2.7 OneroustermsCovenantidentified6loanswithwhattheyconsideredtobe“onerousterms”.Settledsince2003 Onerousterms

Numberofloans

Repaymentondemand 2High interest rate (comparatively)of7%

1

Mortgage 2

4.3 TotalloanbalancesThe total loanbalance thatwillbecarriedbyanoperatorappears tovarysignificantlyanddoesnotnecessarilydependonthesizeoftheoperator.Forexample,onesmalloperatorinterviewedaspartofthisprojectreportedcurrently carrying a loan balance across a very small number of villages of $2.5million,while a large operatorinterviewedreportedthattheirtotal loanbalancewouldneverbeallowedtobehigherthan$3millionandwascurrentlyinthemid-$500,000’s.

While some operators report that theywill only carry up to amaximum total loan balance (across all of theirvillages) it isunclearwhatwouldhappen(inthefuture)shouldthatloanbalancebereachedbutmoreresidentswererequiringfinancialassistance.

4.4 TheroleofoperatorsinprovidingfinancialassistanceOperatorsdonotconsiderprovidingfinancialassistancetointendingresidentsandresidentsascorebusinessandreportofferingfinancialassistanceonlywhentheyneedto-“thisissimplyaconsequentialoutcome”.Despitenotbeing‘corebusiness’however,manyoperatorsdoproactivelymentionfinancialassistanceopportunitiesatAGMsand other resident meetings. They report however that this is largely positioned in terms of ‘not wantingresidentstobeworriedabouttheirfinances’andadesiretoreassurethemthattheirplaceinthevillageissecureregardlessoftheirfinancialorchangingfinancialcircumstances.

Operators report thatno residentwouldeverbeejected for financialhardship reasonsand that for this reasontheyhavenooptionbuttoofferfinancialassistance.Thisstudyhasfoundnoevidencethatfinancialassistanceisever declined - other than for ‘unreasonable’ lump sum loan requests as already described. Most operatorsdescribeofferingfinancialassistanceasa‘lowkeyactivity’.Therewasalsonoevidenceofanyrecurringloan

Oneoperatorreportedthattheytransferredalloutstandingloans(subsequenttotheirpurchaseofanumberofvillages) to a finance company because they conisdered managing these loans to be “too difficult, too muchhassle”. Theyreportbeingunawareof thefinancialarrangementsmadebythefinancecompany.Thisoperatorreportscontinuingtoofferfinancialassistanceintheformofdeferrals,“notloans”.4.5 Waysofadvertising,representingorinformingoffinancialassistance:Operators report that theavailabilityof financial assistance isnot formerly advertised to residentsor intendingresidents – “wewant to discourage it” and it does not appear to be used as part of anymarketing collateral.


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Operators also report that ‘sales people’ do not actively offer financial assistance opportunities and thatdiscussions,forexample,aboutbridgingfinanceordeferralsonentrypaymentswouldonlyariseoncearesidenthadmadeadecisionaboutavillage(i.e.thisisnotusedasasalestoolorenticementforintendingresidents).OneOperator reported however that they would not be averse to using financial assistance as part of their salesapproach.There is inconsistency across operators with regards to what is stated about financial assistance in disclosuredocumentsforexample:

• Somebutnotalloperatorsincludeinformationaboutfinancialassistanceindisclosuredocuments• Somestatementsareshortandgenerice.g.“financialassistancemaybeprovidedonacasebycasebasis”• Oneoperatorreportingnotknowingifthisinformationwasintheirdisclosurestatements• Oneoperatorreportedthattheyonlyrefertodeferralsfortransfersintheirdisclosurestatements(butother

formsoffinancialassistancearealsoavailableandnotmentionedintheirdisclosurestatements).

4.6 Processesofferedbyoperatorswhenoffering/providingfinancialassistanceProcessesofferedbyoperatorswhenofferingorproviding financial assistance vary significantly. There arenoclearpatternsevidentintermsofthedocumentationtheymayrequestfromresidentsandtheformof‘contract’theymayprepare,forexample:• Somereportaskingforfinancialstatements,othersdonot• Inmostinstancesthecontractisintheformofaletterbetweentheoperatorandresidents• All operators report that they advise the resident to seek independent financial and/or legal advice – and

advisethemtospeakwithfamilymembers.Thereisnoevidencetosuggestthatthisisformerlyfolloweduponbyoperatorsinall instances(notethatStatutorySupervisorsdonotreportanyfamily-relatedcomplaintsasaresultofthefinancialarrangementsresidentsmayhavemade)

• Someoperators aremore rigorous in their requirementsheree.g. BUPAwill not takeon a loanunless theresident has obtained external legal advice. BUPA also has more comprehensive information on loansavailable.Thetermsaretransparent.

4.7 SystemsinplacetocomplywiththeCreditContractsandConsumerFinanceActAlloftheoperatorsinterviewedaspartofthisprojectwereawareoftheirobligationsundertheCreditContractsand Consumer Finance Act. However,many operators reported that because they charge no interest on theirloans/deferrals that they are not required to complywith the CCCFA. Analysis by Covenant Trustees Limitedfoundsomeexamplesofnon-FSPAcomplianceandthreeoperatorstakingpartintheRVAsurveywerealsonon-CCCFAcompliant.TheRVAsurveyaskedoperatorsiftheywereawareoftheCCCFAregulations–mostbutnotallsaidtheywere.RVA–awarenessoftheCreditContractandConsumerFinanceregulationsNo–7.14%Yes–92.86%


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In2018 (promptedby interestby theCFFC in financialassistancearrangements) theRVAengageda lawfirmtoprovideasetofrecommendations.Theseincludedthat:

• OnlyaninterestbearingloanconstitutesacreditcontractandneedstocomplywiththeCCCFA

• Operatorsshouldonlybeusingstandardtemplate loandocuments (wherethe loanconstitutesacreditcontract).

Asaresult theRVAadvisedallmembersofferingfinancialassistance intheformofacreditcontracttobecomeFSPA compliant. The dispute resolution service offered to members is the Insurance and Financial ServicesOmbudsman.Therehavebeennodisputesreportedtodate.ThemainotherdisputeresolutionserviceusedbyoperatorsisFinancialServicesComplaintsLtd.

4.8 Theinvolvement/practicesofStatutorySupervisorsAn objective of this study was to identify the involvement or practices adopted by Statutory Supervisors foroverseeing(1) the lawfulnessofoperatorprocessesand(2)ensuringthatthefinancial interestsof residentsareprotected.StatutorySupervisorscurrentlyhavenolegislativeorcontractualdutiesinthisrespect.Statutory Supervisors report that they are generally unaware of financial assistance offered by operators toresidents until settlement and that only some operators disclose loan details in quarterly reporting. StatutorySupervisorsallreportbeingfullyawareoftheCCCFAandFSCLrequirementsbutgenerallydonotdiscusstheissueof financialassistancewithoperators,althoughCovenantTrusteesLtd report that“whenvillagesadviseus theyarelookingintoloanstoresidentsweletthemknowthattheymayneedtocomplywiththeCCCFAandthattheyshouldseeklegaladvice”.ThefollowinginformationwasprovidedbyCovenant–andconfirmedwithotherSupervisors:“Statutory Supervisorsdonothaveany legislativeor contractualduties todetermine the lawfulnessofoperatorprocesseswhenprovidingfinancialassistance. SupervisorsofDebtandMISschemesarealsonotresponsibleforCCCFA compliance or directly monitoring the lenders CCCFA compliance. The Commerce Commission is theregulatoroftheCCCFA. InsomeDebtandMISproductsthesupervisor/trustee isthe lender,howevertheCCCFAcomplianceisdelegatedtotheManagerofthescheme.Itisnotappropriateforthesupervisortooverseealllegalcomplianceobligationsoftheoperator.OurroleistoprotectresidentsasawholeandtheirORAinterests.

Supervisorscheckterminationpaymentstoexitingresidentsandensurethattheamountdeducted is in linewiththeloanagreementandstatements.Wealsocheckthevalidity/legitimacyoftheloanrepayment.Wealsorequireinstructionfromtheoperatorortheirsolicitortomaketheloandeductions.TheOperatorretainsliabilityforanyimproper instruction under the TCA standard deed of supervision. The refund statement needs to beapproved/acceptedbytheexitingresident/theirestate”

4.9 TheexperiencesofresidentsreceivingfinancialassistanceThe process of receiving financial assistance (and in particular for existing residentswhomay require financialassistanceintheformofatransfer,adeferralorweeklyfeesorotherone-offhardshiploan)isagenerallyaveryprivatematterandonlydiscussedbetweentheresidentandthevillagemanagerand/ordirectlywiththeoperator.Initialapproachesviathechairsofresidentsassociationshighlightedthefact thatthesetransactionsareprivateandnotdiscussedamongthegeneralresidentpopulation(withanumberreportingthattheyhadnoideawhetherresidents in their villages were receiving financial assistance). Residents receiving financial assistance can feelembarrassedandadmittobeingunwillingtodiscusstheirfinancialcircumstanceswithotherresidents(justas,intheirlivespriortoenteringavillage,thesematterswouldhavebeenkeptlargelyprivate).


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Themajorityofresidentsreceivingfinancialassistancehaverequiredthisinordertoremainintheirvillage(ortoenter a village) and we note that there have been no formal complaints made regarding the terms of thisassistance.Fromaresidentperspective,inmostinstances,nomoneychangeshands.Thetransactionforresidentsappearsrelativelystraightforwardandformosthasnoimpactontheirday-to-daylifeandsettlementoccursuponexit.Theredoesappeartobesomeevidencehoweverofsomeminorconfusionoversometerminologyinloanagreements(inaminorityofinstances).

4.10 Otherquestions4.10.1 RiskstotheindustryofthenumberofoperatorsofferingfinancialassistanceThemainriskstotheindustryintermsofthenumberofoperatorsofferingfinancialassistanceisatpresentmorelikelytobereputation-related,forexample:• IfanoperatorisnotcompliantwiththeCCCFAortheFSPA(wheretheyarerequiredtobe)and/or• Ifanoperatorisseentobeprovidingfinancialassistancewithoneroustermsand/or• Notadequatelyexplainingthetermstoaresidentoradvisingthemtoseekexternalfinancialadviceandtalk

toafamilymember.There is also the risk that non-compliance with the CCCFA or the FSPA will result in censure and fines for anoperator.Anotherpotentialindustryriskthatshouldbeconsideredhoweveristodowiththealternativescenariowherebyoperatorsdonotofferfinancialassistancetoresidents–andtheresultingimpactontheir‘hardship’statusand/orability to transfer toa servicedunitor care suiteand/or thecostassociated should the residentbe required toseekaloanfromelsewhere(andwhetherornottheywouldqualify).

4.10.2 TheroleoftheexistingregulatoryregimeThis study considered the role of the existing regulatory regime in ensuring intending residents’ and residents’interests are adequately protected through ‘external oversight of the conditions of entry into continuingoperationsofretirementvillages’(Section3)orwhetherthereareanygapsormattersthatcouldbeimproved.ThegeneralconsensusamongoperatorsandStatutorySupervisorsisthatthereareadequatechecksandbalancesinplaceinthisrespectincludingtherequirementtocomplywiththeCCCFAandtheFSPA,therequirementtohaveadisputesresolutioninplaceaswellastheexistingcomplaintsprocess(viaStatutorySupervisors).Notehowevernotethatthisstudy,andtheRVAsurveybothidentifiedexamplesofnon-compliance.Todate therehavebeenno formal complaintsmadeby intending residents, residentsor their familymembers(includingonsettlement)regardingloanactivities.


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4.10.3 Operator’scompliancecostsandbarrierstoprovidingfinancialassistanceThereweretwokeydriversofoperatorsofferinginterestfreefinancialassistancetoresidents.Firstly,thecostofcompliance associated with offering interest bearing financial assistance (the requirement to comply with theCCCFA and the FSPA) and the fact that operators do not consider financial assistance to be part of their corebusiness.Operatorsofferfinancialassistancewhenitisrequiredandtomeetaspecificneed.4.10.4 OtherActrelatedmattersRegulation33(2)oftheRetirementVillages(General)Regulations2006requiresadisclosurestatementtosetoutthenatureoffinancialassistanceandthetermsonwhichresidentsmayreceiveit. Thisregulationapplieswhenintending residents have been given a disclosure statement and an advertisement indicating residents couldreceivefinancialassistancemayhavebeenpublishedwithin6monthsofreceivingthedisclosurestatement.Thisstudyhasfoundthatmostoperatorsdonotadvertise(inwritingatleast)regardingtheavailabilityoffinancialassistance and that there is inconsistency in the extent to which financial assistance is outlined in disclosurestatements.Someoperatorsprovideinformationaboutfinancialassistanceindisclosurestatements,somedonotandothersdonotprovideallof therelevant information (i.e. thedisclosurestatementmayoutlineonetypeoffinancial assistance provided but not another, also provided by the sameoperator). Operators do ‘technically’advertisetheavailabilityoffinancialassistancebutthisislargelyverbal.


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AppendixA:SummaryofkeyfindingsfromthePWCRVAsurveyFollowingisasummaryofthekeyfindingsofthePWCsurveyconductedonbehalfoftheRVA(thesearereportedverbatimfromthePWCreport).• Onlyaminorityofvillages(40.6%)provideloansorfinancialassistancetoresidents.Loansaretheexception

formostoperators.Typicallyeachoperatorhasfewerthan3residentloans.

• Thelargeoperatorswhodoprovideasignificantnumbersofloans(byloannumberanddollarvalue),typicallydonotchargeinterest.Fromthesurvey,96.51%oftheloanbalancesoutstandingareoninterestfreeterms,eventhoughonly60%ofloansprovidedareinterestfree.

• Onlyaminorityofloans(35.7%)haveinterestratesexceeding4%(i.e.higherthancurrentbankrates).Thesurveydidnotaskfordetailsonloancommencementdatesbutitisreasonabletoassumethatatleastsomeloanswithinterestratesabove4%mayhavebeenenteredintowhenbankinterestrateswereabove5%.

• Loansaremostcommonlyusedtoassistwiththecapitalsum/ORAadvance,aretypicallyinterest-freeandrepayablewhentheORAsumisrepaidbytheoperatorviaanoffset.Thelargestoperatorsalsoprovideloansasbridgingfinancetohelpresidentsmoveintovillages.

• 35.7%oflenderswereinthe‘notforprofit’(NFP)sector.30%oftheloansmadebyNFPoperatorsdidnothaveinterest.TheloansintheNFPsectoraretypicallyforloweramountsthaninthe‘forprofit’sector.TheaverageloanbalanceforaNFPresidentis$25kwhiletheaveragetotalloanbalanceperoperatoris$85k.MostinterestratesintheNFPsectorfallwithinthe2%-6%range.

• 64.3%oflenderswereinthe‘forprofit’sector.Thissectormostlyoffersinterestfreeloans(circa60%ofloansoffered(bynumber)areinterestfree).TheaverageloanbalanceperresidentinthissectorissignificantlyhigherthantheNFPsector.Forlargeoperators,theaverageresidentloanisover$107kperloanandiscirca$34kforsmaller‘forprofit’operators.

• Theinterestrateschargedinthe‘forprofit’sectorshowedsignificantvariation(from0%to12%).Nonetheless,thelargestlendersinthissectorbynumberofloansandloanbalancesprimarilyprovideinterest-freeterms.

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