Chris Horlick discusses with Helen Morrissey how the complex issue of long term care is evolving
Long term care has been put firmly in the spotlight with the recent publication of the Green Paper Shaping the Future of Care Together. Why do you think long term care has suddenly become so topical?
Horlick: The number of elderly people requiring residential care of some kind is significant and set to increase dramatically as people live longer.
For example, the number of people over 75 will increase by 55% in the next 20 years and while 418,000 people are currently in residential care, this is predicted to more than triple to 1.5 million by 2081.
This has two main effects firstly that local authorities will have to provide more funding to cover the cost of care for those unable to pay for it themselves. This cost is anticipated to be considerable and the government¹s Green Paper started the debate on potential funding options.
However, there is also concern around people who have to pay for their own care and receive little or no advice on how to go about it. As a result, many of those self funders could run out of money and also have to revert to local authority funding putting added strain on the system. In addition, of course, it means any inheritance that they could have left to loved ones is eroded a focus of many recent media campaigns which have generated heated debate about the fairness of the system. With financial solutions available today no one need run out of money while in care.
What do you see as the key challenges surrounding long term care and how can we address them?
Horlick: The main issues are the lack of public awareness of funding options and a real lack of advice in an area that is still seen as highly specialised.
A YouGov survey in 2007 asked the question ŒWhere did you go for advice on funding care?¹ The responses ranged from local authorities and health professionals to care home owners and the internet. Only 12% of people said they had spoken to a financial adviser.
When someone has to go into care it can be an emotional and difficult time for all involved. It is often the first time people have had to work with local authorities and the costs being discussed can be intimidating. The average cost of residential care in the UK is now estimated at £24,128 a year. If nursing is also required, this can rise to £34,528 a year.
Yet, only a minority of people seek financial advice, despite the sums involved, and the assumption can be that the only solution is to use a person¹s assets to fund care until they run out and then revert to local authority support. This need not be the case and with the appropriate financial advice, an income to cover care funding while retaining a level of inheritance can be put in place.
What can we do to make long term care less complex?
Horlick: The lack of advice being received is a significant contributor to consumer confusion. Research by Oliver Wyman last year showed that of 130,000 new care home residents per annum, 42,000 were privately funding their care. Most people in this group should have seen an adviser but only a third of them got any financial advice with a mere 17% receiving that advice from a CF8 qualified IFA.
State assistance with the cost of old-age care is means-tested. In England, if a person¹s assets (savings, investments, pensions and property) exceed £23,000 hardly a high sum these days an individual will normally be expected to pay for their own care in full.
There is a real opportunity for product providers, local authorities, care homes and advisers to work together to ensure that advice on funding options is readily accessible for those going into care and their families.
By removing mystery and confusion we can help remove the perception of complexity.
How do you think products need to evolve to take long term care funding into account?
Horlick: There are products in place already which offer funding solutions.
Whether that is a prefunded insurance product or an immediate or deferred needs annuity the problem is the lack of awareness that these options actually exist.
There is an opportunity to make equity release more closely linked to care funding using the money released from property to purchase an annuity for example. In the current property market, where people are experiencing difficulty in selling property, this can offer reassurance and peace of mind until the property is finally sold.
Partnership currently offer a product which does this, but the opportunity is there for other equity release providers to also get involved and help grow the market.
Many people feel uncomfortable discussing long term care. What can advisers do to introduce the topic into conversation and put people at ease?
Horlick: Do a search for Œfunding care fees¹ on most national press or consumer money websites and you will see a plethora of articles and reader comments on the high cost of care and what is seen as the unfair means-testing process resulting in much-loved family homes having to be sold.
There is certainly no lack of passion about the subject.
However, what also comes across is the helplessness people feel and the lack of options they believe are open to them.
Advisers have an invaluable role to play in shattering these preconceived ideas and spreading the word before it is actually needed that there are funding options available and that it should form an integral part of estate planning.
Often it may be a family with one or more elderly relatives that the IFA has the relationship with 90% of immediate need annuities, for example, are purchased by power of attorneys. Include the subject of funding care in annual client reviews. If it does not affect the client directly they may well have friends or relatives who have a need for advice.
It remains a fact that one in 10 fifty-year-olds today will live to to 100, and one in four of us will require some form of care.
The need for Œholistic¹ financial advice is clear, covering not just funding care fees but also inheritance tax mitigation and general investment advice.
Chris Horlick is managing director of care at Partnership
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