Dene Mackenzie from the Herald talks to Forsyth Barr broker Lyn Howe about the challenges the aged care sector may face as a result of care giver wage increases.

The equal pay increase approved by the Government this week is an aged-care sector-wide issue with significant ramifications given the potential pressure on operating costs for a sector battling to generate a satisfactory return.

Forsyth Barr broker Lyn Howe said the New Zealand Aged Care Association had stated the sector paid all staff based on the market and the ability to pay – with pay increases typically tied to increases in funding. There was no gender bias.

The association also stated the sector was underfunded.

District health boards (DHBs) paying caregivers and nurses more than the aged-care sector was a prime example.

An increase in funding for the sector was positive and well overdue but there were some possible issues for operators, Howe said.

They included:

Changes in relative pay rates.

Any increase in wages for caregivers would change the relative differences between pay rates with other employees in age-care facilities, such as registered nurses.

DHBs continued to pay more than the aged-care sector.

There remained a large discrepancy between what nurses were paid by DHBs and what they earned in the aged-care sector.

Private paying residents would pay more.

Any increase in funding through the maximum contribution increased the maximum private contribution for paying residents. That could possibly have an impact on the level of additional room premiums some residents were prepared to pay. The Age-Related Residential Care services agreement was a national agreement.

Any change to the contract, such as a lift in funding rates, had to be negotiated through the annual negotiations and the aged-care association was about to start this year’s round of negotiations, Howe said.

The negotiations this year were complicated by the possible lift in funding coming to the sector due to the equal pay settlement. However, wage pressures for caregivers were just one area facing operators.

The association advised its aged-care price index for the September 2016 quarter indicated 68 per cent of total budgets were wage costs.

Industry concerns about cost pressures were numerous, she said.

They included increased levels of palliative or end-of-life care, increased bariatric (obesity) care and the need for specialist equipment, the costs of increased ambulance transfers, given higher level of acuity (level of severity of illness) of New Zealand residents, and ongoing compliance creep through things like health and safety, the Food Act, Fire Service levy and the complaints process.

Also, costs were falling behind the minimum wage. There had been two increases to the minimum wage outside of funding increases for the aged-care sector.

Increased acuity and frailty of new residents meant shorter stays, reducing average occupancy and, in many cases, residents were just being assessed as needing rest-home-level care when they needed a higher level of care, further hurting operating margins, Howe said.

Larger operators with scale and sound staff rostering systems and centralised management, could still operate successfully in the market. But a continued exit of small operators was expected.

A result of ongoing funding challenges and an increasing awareness of the Australian funding model, where capital sums were provided by some residents, larger operators had been assessing the use of occupation right agreements (ORAs) over aged-care beds rather than charging room premiums.

The average annual increase in aged-care beds having ORAs over the last five years, 5 per cent from a low base, had reached nearly 2400 beds. That represented 6 per cent of total beds.

Forsyth Barr expected the bulk of those beds to be serviced apartments certified for the delivery of aged care.

Apart from Oceania, which wanted to lead the charge with ORAs on care suites at its recent new developments in Auckland, there had been few operators interested, Ms Howe said.

Summerset was using ORAs in 10 of its beds in a new trial 20-bed dementia facility in Levin. The ORAs were larger one-bedroom apartments. Oceania was assessing using ORAs at future dementia facilities which were now expected at each new village. “We have expected the use of ORAs over aged-care beds to take some time to get established.”

It also does not appear to be a priority for Ryman or Summerset. Metlifecare had not indicated an interest at this stage, Howe said.

There was also a difference in opinion about the use of deferred management fees in ORAs and whether it should be at the same level in the care facility as the village, given a shorter period of stay was likely.

The process of entering into an ORA involved a lawyer and signing complex documentation. Arguably, it was something adding to an already stressful time for a future resident and family members who were dealing with the need to move into residential aged care.

Operators might well wait and see what transpired with the wider funding review before deciding to use ORAs more widely, she said.

Original Herald article can be found here.


  1. This is a good summary of some of the impacts for aged-care. Whilst we all agree that caregivers should be paid better, it’s not going to help if the sector cannot balance this with pay rate relativities (especially for registered and enrolled nurses). Interesting the rise in ORAs but, it needs to be remembered that ORAs require capital and not all New Zealanders have that now and even less so into the future given the decline in home ownership. Smaller community based care facilities, particularly those in rural areas, are going to suffer and possibly close given the chronic low funding increases of recent years (well under the Statistics Aged Care Price Index calculations). It needs to be remembered that the ‘pay equity’ funding is not ‘aged-care’ funding; it is funding to settle a law suit (or class action).


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