In it for the long run

We are all getting older - and the statistics for the UK population as a whole prove it. Most recent Office of National Statistics figures show around 16% of the population is now over 65 compared with 13% in 1971. Even the old are getting older - around 12% of the over-65s now are aged 85-plus compared with just 7% in 19711.

However much we might wish otherwise, it is not the case that an ageing population is necessarily going to be a healthier population. Government statistics show that the proportion of older people with a long-term illness or disability that restricts their daily activities increases with age. Just over a quarter of men and women aged between 50 and 64 reported such a disability compared with two-thirds of men and three-quarters of women aged 85 and over in 2001 (based on the most recent Census in England and Wales).

Add an ageing population and the fact that people are increasingly likely to spend part of their life as "living sick", it is clear that there should be a growing need for long-term care planning as clients focus on their quality of life in retirement. Advisers focusing on holistic planning for retirement income do not need to be told that they should be considering the possibility of the client requiring long-term care at some point. Around 480,000 people are in nursing and residential homes; and it is estimated just one in five of them are being funded by local authorities1.

That should create a need for advice from financial advisers on how best to factor long-term planning into retirement income solutions. Certainly the annual costs of long-term care, according to www.bettercaring.co.uk, are significant, with an average cost of £24,000 a year for residential care, while nursing care will push this up a further £5,000. The majority of people will have to pay for at least a certain percentage of their long-term care with many having to pay for all the long-term care needed. When a local authority agrees that a person needs home care it assesses their means - those who have assets greater than the upper limit will have to make their own arrangements to pay. It was estimated in 2005 that around 70,000 homes were sold each year to help fund care costs¹.

Quality of life

At Lincoln Financial Group our own research shows that preserving the quality of life in retirement and - crucially - keeping their home in retirement are the major priorities for people who are already retired or heading for retirement. We found that maintaining the quality of life throughout retirement is the main priority for those aged 45 to 74 and that keeping their home when retired was the third most important financial need as they face up to the realities of retirement.

That is the statistical background - and it tells a compelling story. We have an ageing population which will have to confront the reality of ageing. For some, this will mean ill-health while trying to maintain their quality of life and keeping their home in the face of soaring costs for long-term care.

On the face of it, this should be a strong argument for financial advisers to introduce the topic of long-term care when talking to clients. The over-60s control around 80% of the wealth in the UK² and need advice on a range of issues. Holistic advice should address the issue of quality of life and be able to provide solutions. It is, of course, inevitably a subject that is difficult to discuss with clients and something of a taboo. We are all well aware that protection products have to be sold rather than bought to a great extent and this applies very much to long-term care products. It also has to be admitted that products which specifically address the long-term care issue are few and far between in the current market.

Long-term care resurgence

Some argue that the long-term care market could be set for a resurgence with the Government talking about working more closely with the private sector on the issue. The Association of British Insurers' director general, Stephen Haddrill2, said in 2007 "The private sector currently plays only a small part in the provision and funding of long-term care. However, with the right environment we believe that this could change significantly."

Such an environment to some extent already exists, in that advisers can point to the compelling - and rather sobering - statistics on ageing and the costs of long-term care. However, financial advisers need to have something to advise on and currently there are few providers of long-term care products - Axa, Tomorrow and Partnership are the only ones offering insurance products.

Realistically, the industry needs to adapt and there is a need for more innovative solutions from providers. Pensions products are changing in response to increased longevity and the need for clients to stay invested past traditional retirement age; there is no reason why there should not be similar innovation in the long-term care market. Advisers will know that many clients will value the choice and the flexibility to be able to afford the most appropriate care for their circumstances in old age. Advising on care in old age is a natural progression for advisers.

*Sources: ¹Joseph Rowntree Foundation, as at 2005. ²Money Management as at 01 March 2008.

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• Long Term Care