Long Term Care

Seven out of 10 over-55s don't believe they should pay for care in retirement, according to the sixth Real Retirement Report produced by insurer Aviva in June 2011.

Currently, the state offers no help with care costs to individuals with assets in excess of £23,250, placing many pensioners who need care in a position where they may need to sell their homes to pay nursing home fees.

The July 2011 report on Funding of Care and Support by the Dilnot commission recommended raising the assets threshold to £100,000, with a lifetime cap on care fees of £35,000. According to the Aviva report even these proposals don't go far enough.

Among those surveyed who felt they should make a contribution, the figure they thought would be appropriate averaged just £3,600 for a lifetime of care. In reality, the average annual care home costs are about £26,000 and the average length of stay in care two years, but with the current average annual pension income often being well short of this, a huge deficit remains.

Whilst most people do not want to pay for care, the majority concede it is unlikely the state will be able to pick up the bill.

When pressed to say who should pay, 51% said the "better off" should be required to contribute more, while others said the contribution should be based on an individual's lifetime income. More than half (53%) said there should be a cap on the total amount to be paid.

The potential cost of care remains a significant worry among the elderly according to the survey, which found that 12% of the over-55s are "terrified" of the potential bill. Only 2% said they had plans in place to finance care in their retirement.

Perhaps a more pressing concern among pensioners is battling rising inflation and falling incomes.

The 75-plus group have possibly been worst hit by falling interest on savings and the rising price of gas, electricity, rent and food. The average monthly income among over-75s continues to fall, which compounds the issue.

The Dilnot report highlights how failure to adjust social care policy over time has left care under-funded across the board – at national, local and individual level.

The welfare state was designed in the 1940s, a time when the idea of millions of people living to advanced old age was virtually unthinkable. Policy has failed to move with the times and appears unfit for the 21st century.

A key is developing an awareness and national culture of saving for later life. Whilst private pensions may have been sold as later-life treasure troves, alongside images of Mediterranean villas or sumptuous retirement apartments, the fact is that we’re in the midst of a pensions problem, whereby many people will have to cope with a far more modest income in later life – but the cost of care problem could dwarf it by comparison.

There is simply not enough money being put aside privately or publicly and the vast majority of the population is hoping they won’t need care, when statistically at least, one in four people will need it.

Early planning can ensure that you have a choice over the standard of care you receive – just make sure your adviser holds the CF8 qualification, as only those holding it can advise on long term care planning.

Nathan Glaister
Financial Planning Consultant

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