Capital repayment: where do the parties stand?

With the next government likely to be formed by coalition, the minor parties’ views on capital repayments matter. We asked parties across the political spectrum to tell us where they stand.

National and Labour agree there should be a legal deadline for repaying a resident’s capital when they leave a retirement village, but disagree on where it should be set. The minor parties that could help form the next government have their own ideas about the reform proposals.

Village Guide invited the spokespersons for National and Labour to a Q & A, and asked five minor parties to outline their positions.

The Opportunity Party aligns with National’s nine-month deadline but would also start charging charge interest after three months. The Green Party broadly supports Labour’s policy, and would also consider a minimum requirement for capital sharing, and the possibility of a maximum threshold on deferred management fees (DMF). New Zealand First did not respond to our questions, but according to media reports is now proposing a bond scheme that would let departing residents access funds before their unit sells.

In our Q & A, Labour’s seniors’ spokesperson Ingrid Leary explains how the party’s ‘genuine financial hardship’ exemption would work in practice and how soon the law could change. National did not respond to our invitation*; nor was there any response to our questions from ACT or Te Pāti Māori.

Here is where the parties stand, and what it could mean if you are thinking about moving into a village.

A Recap: Where do Labour and National stand?

The National Party's reform package would see residents who are leaving a village ‘to live elsewhere’ receive an initial payment of 10 per cent of their capital sum (less the DMF) within four weeks of termination of the ORA, with the balance payable within nine months. The initial payment would not apply to deceased estates; and a hardship pathway is available for residents who need access to further funds sooner than nine months. The reforms would only apply to residents who enter into an ORA one year after the bill becomes law, and villages of less than 50 units are excluded.

Labour proposes an initial payment of 10 per cent of the capital sum (less the DMF) or $50,000 (whichever is less) within five working days, with the balance due within 60 working days. Interest is payable if these deadlines are not met. Labour's policy covers both existing and future residents, and villages that can demonstrate ‘genuine financial hardship’ can apply for an exemption.

Where do the minor parties stand?

We reached out to all the minor parties and invited them to share their positions on capital repayment reforms.

The Green Party broadly supports Labour’s policy: an initial payment of the lesser of 10% or $50,000 and a three-month maximum repayment deadline. The policy would apply to both existing and future residents. In addition, a Green Party spokesperson told us they would ‘investigate a minimum requirement for capital sharing between operators and residents and/or review the maximum threshold for deferred management fee’.

The Opportunity Party favours National’s nine-month deadline with earlier access in ‘cases of specific need’; but also favours interest payable after three months to ‘encourage prompter repayment’. Opportunity is also open to a 10% initial payment ‘on whatever timeframe is administratively practical’. Opportunity’s policy would apply only to future residents.

While New Zealand First did not respond to our questions, according to recent reports in the New Zealand Herald, the party does not fully align with National's policy and instead favours a bond scheme that would allow departing residents to access funds before the sale of their unit. A New Zealand First spokesperson told the Herald the bond scheme was being considered to “complement the current recommendations”. At the time of writing, no further details are available on how the bond scheme would operate.

ACT and Te Pāti Māori did not respond to Village Guide’s questions.

The parties' positions at a glance

Reform proposals

The National Party's revised reform package would see departing residents receive an initial payment of 10 per cent of their capital sum within four weeks of termination of the ORA, with indicative modelling estimating this sum to be $60,000 for an average-priced retirement village villa purchased in 2028/2029. This initial payment applies only where a resident is moving to live elsewhere, and does not apply to deceased estates.

National’s new proposal requires operators to repay the balance of a resident's capital within nine months of termination of the ORA, revised down from its original 12-month proposal after feedback from residents and their families. A hardship pathway is available for residents who need access to further funds sooner than nine months.

These rules would not apply to villages with fewer than 50 units (around 10 per cent of all units), or in a few other situations, such as where the resident receives at least half of the capital gain or controls the sale of the unit.

Labour proposes a much shorter deadline of 60 working days, with a part-payment of 10 per cent or $50,000 (whichever is less) within five working days. The deadline doesn't apply where the resident receives at least half of the capital gain.

The policy also includes an exemption where operators can demonstrate "genuine financial hardship" and Labour says this will protect small, rural and charitable villages.

While National’s proposal applies only to residents who enter into an ORA one year after the bill becomes law, Labour's proposal would apply to both existing and future residents. If elected in November, Labour has pledged to introduce this bill within the first 100 days.

Proposals at a glance

ACT, NZ First and Te Pāti Māori did not respond to Village Guide's questions.

How does the exemption for villages that can demonstrate ‘genuine financial hardship’ work?

Leary says Labour’s exemption is about ‘supporting the policy intention, which is cash flow hardship. We would expect to see more of that in rural and remote areas, smaller villages, or not-for-profit villages.’

Leary says some of these villages have ‘more than 50 units’ but should still be eligible for an exemption because there is a ‘public benefit’ in having not-for-profit and rural sector providers. ‘We don't want to see families and communities separated.’

How will prospective residents know if a village is subject to the deadlines?

We asked Leary to clarify whether the ‘genuine financial hardship’ exemption would apply to a village as a whole, or be determined on a resident-by-resident basis. In other words, will a prospective resident know before signing an ORA whether or not the village will be subject to the mandatory repayment deadlines when they leave?

Leary confirmed the exemption applies to a village as a whole. ‘A village would be required to publish that they have applied for or been granted hardship. The details can be determined at the Select Committee, but it would be open and transparent.’

‘People would go in knowing [the village is exempt], but there would be compelling reasons why they would want to choose that particular village.’

What happens to a resident’s capital if a village is exempt?

We asked what would happen to a resident’s capital if a village was granted an exemption. Would the status quo (no payment deadline) continue? ‘That is something to be considered at the select committee.’

How soon will the law change?

While Labour has pledged to introduce the bill in the first 100 days, Leary says the bill will not be passed under urgency. ‘We want the bill to have a fulsome select committee with submissions from all interested parties, so that we get the nuance right and draw the net as close as possible regarding the hardship exemptions for villages.’

Leary says ‘seniors have waited long enough’, so unless there was compelling evidence that a longer timeframe was needed, the bill would take effect ‘within a reasonable time of royal assent’.

National’s policy would not take effect until one year after the bill receives Royal Assent.

Where does this leave prospective residents?

Any law change will likely require support from coalition partners, and with a range of views across the political parties the discussion looks set to continue, both in parliament and at a future select committee. Note that capital repayment is only one aspect of the proposed reforms, with other matters such as termination of weekly fees after leaving and complaints procedures also under consideration.

Regardless of the outcome of the election, prospective residents who wish to have their say should keep an eye on progress of the reforms and consider making a submission to the select committee.

For now, the terms of the individual ORA prevail. Several of the larger New Zealand operators have already introduced their own repayment deadlines - ask the village sales manager for details.

*As National and NZ First did not respond to our invitation any details in this article are drawn from previously published material.