Age-old problem

In 1789, Benjamin Franklin declared, “There is nothing more certain than death and taxes”. More than 230 years later, Franklin might have been surprised to find death is a lot further off and longevity could have an enormous effect on our taxes, and how we care for our ageing population.

Our average life expectancy will jump from 82 years old to 92 later this century and that will have a huge impact on our society, according to demographer Paul Spoonley. He says there is an urgent need to start talking about this.

“I’m a baby boomer. When I was growing up, seven per cent of my community were aged over 65. In comparison, by the end of this decade nearly a quarter of us will be 65 or over. At the same time, the number of under 15-year-olds will decline as fertility declines.”

As a result, the aged care sector has grown enormously, with a huge increase in demand that is offering both challenges and opportunities.

The challenges were most dramatically publicised late in 2022 by a group of members of the New Zealand Aged Care Association (NZACA) called ‘Aged Care Matters’, claiming we were on the precipice of a national disaster because of lack of resourcing.

They erected an enormous billboard photo-shopping then prime minister Jacinda Ardern and former finance minister Grant Robertson outside the Beehive, showing what the two politicians would look like in their 80s, and saying by the time they needed care New Zealand would be more than 66,000 beds short.

Last year, Te Whatu Ora | Health New Zealand allocated an additional $93.9 million a year to the aged care sector, while the previous government promised to allocate $40 million to address wage parity issues for aged care workers, with $200m annually after that. But that was also the year nearly 1,000 aged care beds closed, with the sector blaming chronic underfunding, rising costs and harsh immigration settings.

The issue is growing daily. About 80 people a day turn 65, which means in six years we will have more than a million people aged 65 or older. By 2040, that will rise to 1.3 million, and to 1.5 million by 2050, making up one quarter of the population. About 200,000 of these could be 85 plus.

Te Whatu Ora forecasts suggest around 78,000 beds for aged care will be needed by 2040. Currently, there are about 40,000 beds, with an occupancy rate of 86 per cent. The sector says about half of these beds are well over three years old and are no longer fit for purpose.

The sector cares for more than 35,000 residents, nearly two-thirds of whom are at one of the higher care levels (hospital, dementia, or psychogeriatric) and require highly specialised care by registered nurses and caregivers/ healthcare assistants.

However, this does not mean there are spare beds, as any additional beds are needed for flux of movement, such as hosting respite patients.

A 2022 Business and Economic Research Limited report says the sector is a broad church, with a wide range of ownership models, including religious institutions, charitable trusts, family- owned, not-for-profits, publicly listed and privately owned facilities, and groups of varying sizes.

Many bed closures, and therefore loss of facilities, are coming from these ownership segments who have no alternative income streams to supplement their funding, unlike retirement villages.

It is easy to confuse the services of retirement villages and aged care residential facilities. Retirement villages are typically self-funded residential communities, while aged residential care is closer to a hospital, with registered nurses offering four levels of care: rest home, hospital, rest home dementia, and psychogeriatric specialist.

To confuse the issue, many retirement villages also offer aged residential care. These publicly listed providers (not all are publicly listed corporates) operate 34 per cent of the sector’s bed supply.

NZACA board member Rhonda Sherriff MInstD says the challenges of an ageing population are a global issue. “Populations are getting older, medications are more effective, people are getting fitter and doing everything they possibly can to stay healthy. Consequently, we are seeing a lot more people growing into older age.”

An ageing population will put pressure on many parts of the economy, with estimates the government could be spending up to 40 per cent of its outgoings on age-related issues.

It is a growing market and easy to assume the business would be a good opportunity. Industry revenue for aged care residential services in New Zealand has grown at a compounded annual growth rate of 2.4 per cent over the past five years, reaching an estimated $3.9 billion in 2023.

But Sherriff says it is a sizable investment to get into the sector. “It’s a multi-million-dollar business they’re running, with a massive amount of upkeep where the costs are significant. The weekly fee paid doesn’t cover maintenance, gardening, and the upkeep of all the facilities residents are signing up for as their expectations grow.”

And she says the industry is cross subsidising with what money they make from the retirement villages going into sustaining the care side of the business and hampering growth.

That underfunding is also impacting on staffing numbers with registered nurses being lured to higher paying jobs in the public health system, with a turnover of almost 50 per cent in a year. Couple that with too few nurses or caregivers being trained. There are 33,000 caregivers employed in aged care in New Zealand.

The global pandemic has added to the woes, with the country slow to open up immigration when the sector relies heavily on a migrant workforce. In 2022, 43 per cent of nurses and one-third of caregivers on visas came from the Philippines and India.

Sherriff warns that whether the government wants to or not, it will be paying for beds in the long run as more patients, too frail to return home but with no access to aged care beds, end up back in the public health system.

“In fact, addressing the residential care sector funding issues would have a fundamental impact in relieving the pressure on the public health system,” she says. “Older New Zealanders would be able to access aged care beds quicker, at less cost, and keep more expensive ($1,500 per day) acute beds open for those that require them.”

Spoonley cites Australia, which has a compact that sets out the responsibilities of individuals and families and governments, and he believes our social contract need to be renegotiated.

“We are entering an era where a lot of our policies and values are no longer going to work given an old-age dominant society, and we’re deferring what will be some tough conversations. We are going to have to change because we can’t afford for our millennials and Gen Zs to provide for us, especially as the dependency ratio between paid workers to those reliant on a state benefit moves from 4-1 to 2-1.

“There is an intergenerational lack of agreement of what we should be providing and this will be more of an issue as we see a younger generation dominating political decision-making,” he says. “We need about an additional 12,000 long-term care beds. So, the questions are – ‘Who is going to provide them’, ‘Who will pay for them’ and ‘Where are they going to be located?’

Spoonley says the reality is the baby boomers are the wealthiest generation; wealthier than their parents were, and their children and grandchildren will be, with the average boomer household wealth around $433,000.

“The question becomes: ‘Do you begin to move towards a model that recognises the wealth that has been made and means-test superannuation? But we are reluctant to have this conversation.”

His words echo the Retirement Commission, which in February this year released a report which included a call for a bipartisan political agreement on how we proceed to talk about our ageing society.

That said, Oceania, an owner and operator of residential aged care centres and retirement villages, says there are strategic issues that boards can address now.

CEO Brent Pattison MInstD believes it is the responsibility of business leaders and boards in the sector to recognise their role in this crisis and rise to the challenge of meeting demand.

“As an industry, we simply cannot wait to address this problem until it becomes too late, and the number of affected Kiwis increases tenfold.”

Oceania is heavily investing in expanding, upgrading and modernising its portfolio. The provider is also attracting and training nurses to address the shortage of registered nurses and caregivers.

In 2023’s financial year, $150 million of capital was deployed for future growth, and Oceania has added more than 1,400 units and care suites through developments and acquisitions. It owns the Wesley Institute of Nursing Education, which provides an intensive course to more than 1,000 students a year. In 2023, Wesley assisted almost 1,500 people to become registered nurses.

As a member of the Aged Care Association and board member of the Retirement Villages Association, Oceania also works closely with the sector to lobby the Government for change.

There is a growing expectation towards retirement, too, from the way older people want to live to what their families expect for them.

Sherriff says she has seen massive changes, from working in an old building not fit for purpose, with six people to a bedroom, to residents living in their own apartments sharing multiple facilities, such as heated indoor pools, all-weather bowling greens, cinemas and cafes.

So, too, has former Aged Care Association CEO Norah Barlow CMinstD, who first started working in the sector when facilities were all owner-operator, not-for-profit groups and government- run hospitals. Over time that changed with Ryman Healthcare and Summerset Retirement Villages leading the move to combine aged care facilities with retirement villages, followed by Metlifecare, which has taken over a number of old facilities.

“I remember going to aged care facilities where customers moved in at 60, living in rooms that could have up to eight beds. This was gradually codified so there is a requirement to have 11 or 12 square metres per person. Now that is more likely to be around 22 square metres with consumer expectations having increased.”

Barlow was CEO, then director of Summerset Villages, CEO of Australian company Estia Healthcare and CEO of Heritage Lifecare. She was also president of the Retirement Villages Association and chaired the committee that developed the 2008 Code of Practice in New Zealand.

She has watched the development of large facilities providing to a variety of needs, from full care suites through to three-bedroom plus independent living valued at anything from $150,000 to well over $1 million.

Barlow believes the sector must be the biggest housing builder in New Zealand, with the variety and quality continuing to rise. But she says to move into one of these units requires a level of home ownership, so a new addition to the market is expected to be rental models for people who don’t have the money to buy.

“There is no question. KiwiSaver will get bigger so more people will have more cash but not assets. I see the demand getting higher, including at the lower price point levels, as well as an increase in quality and service.”

Barlow sees much greater growth in many facets of the sector. “New Zealand has seemed to become more violent and older people are often more worried about this aspect of society. I have no doubt I will live in a retirement village, particularly if I don’t have a partner where I won’t lose independence, but I will be safer and living in more of a community.”

And she would like to see working in the industry as more of a career option, with many companies offering scholarships, particularly in nursing. “There are many nurses who love what they do, but there is also a great opportunity to move into management roles, as regional managers and then general managers.”

Directors and managers are working on two avenues. The first is to continue lobbying the Government, knowing that as boomers continue to move into retirement they will leave, in their wake, fewer taxpayers to fund greater numbers in care. The second has been to find additional sources of revenue.

Former NZACA chief executive Simon Wallace says this includes offering people premium room services, over and above standard rooms, or by the sale of Occupational Rights Agreements. “As a direct result of chronic government underfunding, providers are being forced to find additional income streams offering people premium room services, over and above standard rooms,” he says.

Spoonley also has a challenge for all boards. He is calling for directors to think more about the impact of an ageing population in all sectors. He says while many organisations have gender policies, it is difficult to find one that has specific policies around an ageing workforce or ageing customers.

It’s a lot on the plate of directors but many are prepared for the challenge in a sector which they describe as purpose-driven and dynamic with a committed workforce. “It is hard to find a business that has a purpose and what should be a good financial outcome,” says Barlow. “And you would never find staff more committed to their product and their customer.”