With the debate surrounding funding long term care in the run up to the last general election, few areas have been as topical or well publicized.
Most people are aware that we are facing a demographic timebomb. However it is only now that people are becoming aware of the exact nature of what this means. Not only are there going to be more people reaching old age, they will also be living longer. The most significant impact will be among people aged over 85, who are now set to increase by over 60% in the next 20 years and people aged over 75 who will increase by around 70% in the same time period (Laing and Buisson 2009). They will inevitably need support for their care, whether at home or in residential care homes. The major question facing all politicians at the moment, is how to fund it?
This is a significant issue of public policy, as in addition to a vastly increased number of elderly people there will be fewer people of working age. Currently there are more people aged over 60 in the UK than under 16. This means that we are unlikely to be able to rely on the current system of direct taxation to meet all care costs. Also, with public finances under huge strain, more people who can pay for some elements of their personal care, may be expected to do so.
The good news is that this is now a political priority. Previously there has been much political discussion but little action. The Coalition Government is forming a Commission to review funding of LTC, and has stressed the urgency of this process, demanding that it reports back within a year. It is asking the Commission to review all options including voluntary insurance and a partnership option, where individual contributions align those of the state.
That this issue needs to be dealt with urgently can be in no doubt. Last year 130,000 people entered residential care in England. From this number 41%, or 53,000 people had assets (including property) in excess of £23,250 which meant that they had to fund their own care costs. The costs for many quality care homes can be £50,000 a year, which poses a significant financial challenge. According to Partnership’s research, people who have to pay for their own care, typically live up to 4 years with 1 in 10 living up to 8 years. One of the outcomes hoped for most from this Commission is clarity from the Government about which costs in care the state will cover and which costs the individual will have to meet. This will help people to prepare in advance for meeting these costs. If a care home resident depletes their capital prematurely, they will have to rely on state funding with their family topping up the difference. If the family is unable to do this their relative may have to live in a shared room, or in extreme cases move to a different care home, which is traumatic.
One way to guarantee that capital is not depleted prematurely is an immediate needs annuity or immediate care plan, which will provide a guaranteed income, in return, for a one off premium. This gives the policyholder and their family piece of mind. The capital required to meet care costs is ring-fenced, leaving the residue for inheritance planning purposes. Providing the annuity is paid directly to a care provider, whether domiciliary or residential, any payment will be tax free.
However very few people know where to go to receive advice about funding long term care. Research conducted on Partnership’s behalf by GfK NOP among people aged over 50, revealed that while 11% would go to the local authority for advice only 3% would consider going to a lawyer or solicitor for advice, and only 4% go to a financial adviser. We were surprised by this finding as we believe demand for information and advice from experts and specialists is not only important now, it will continue to be so, as the ageing population continues to grow. We believe that few specialist advisers can afford to neglect this area given its importance to families, the significant costs involved and potential for inheritance tax planning.