Chris Horlick on why financial advisers are missing out on providing long term care advice.
A survey of people aged over 50 years, conducted for Partnership by GfK NOP, found that only 4% of people would contact a financial adviser for long term care advice. This news will be of concern to financial advisers, and particularly for those struggling following the downturn in the investment advice arms of their businesses as a result of the recession.
It is also a very sobering statistic given the significant numbers of people who are now entering residential care and are failing to receive properly qualified financial advice. Currently 130,000 people are entering residential care each year, and from this number 41% or 53,000 people will have to pay for their care costs (self-funders), as they have more than £23,250 of assets including their property. From this number only 7,000 people received appropriate financial advice.
Partnership’s survey also found that people were surprisingly accurate in their estimation of how long they are likely to live (into their 80s) and how many people will go into care (roughly 40%). They were also optimistic in their estimation on how long for (approximately five years). The reality is two years on average but four years plus for self funders and one in ten will live for eight years in care.
Failing to recognise costs
A major area of concern, identified in the research, was that many failed to recognise the substantial costs involved. Partnership’s survey shows most reckon annual residential long term care costs to be less than £30,000 per year while a third believed that care will cost less than £20,000 per year and 12% believe that care will cost less than £10,000 per year. However, typical fees for many quality care homes can add up to a third more than this figure, with around £50,000 a year being nearer the mark.
This means that many people might not have made adequate assessments of the true cost of care and end up spending far more than they need to on care fees or risk running out of money. In some cases people may have to change care home, which is extremely traumatic for the elderly. They also risk falling back on the State. Partnership has estimated that the cost to the State of self funders depleting their capital prematurely to be nearly £1 billion a year.
Partnership’s survey also demonstrated that the majority of people did not have a clue where to go to find advice. Only 11% said they would contact their local authority for advice and information about funding the cost of care, while only 4% would contact a financial adviser and 3% would contact a care home.
This lack of awareness about where to get advice was mirrored by a lack of awareness about the different financial products available to help them with their care fees. Surprisingly, 53% would sell their homes to pay for care rather than fund them through a structured savings plan or annuity scheme on the back of professional advice. This appears to be at odds with current political thinking.
However, a range of products is available to help fund the cost of long term care. One way to guarantee that care costs are met for life and that capital is not depleted prematurely is an immediate needs annuity or immediate care plan which will guarantee an income for life towards the cost of care fees in return for a one off premium. This gives the policyholder and their family peace 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.*
Partnership believes that this is a market which is often neglected and overlooked by financial advisers. It is not only important now, it will continue to be so, as more people enter retirement and the ageing population continues to grow. To put this into context, the cohorts of the oldest people, (and are most likely to need domiciliary or residential care), are set to grow most significantly in the next 20 years, with the over 85s set to increase by over 60% and people aged over 75 to increase by around 70% (Laing and Buisson 2009).
Given the potential growth of the number of people who will require advice about long term care, its importance to families, the significant costs involved together with the potential for inheritance tax planning, Partnership would urge financial advisers to redress this. It is important that financial advisers become a major source of long term care advice and recognise the significant potential value they can bring to people making this important decision.
*The rules governing taxation are subject to change and depend on
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