The reality of care costs
Providing for the potential cost of care in later life is becoming a key consideration in retirement planning, although it is not possible to predict in advance who may need it and for how long.
Life expectancy continues to rise - the average child born in England and Wales between 2011 and 2013 could expect to live a year longer than a child born between 2007 and 2009 according to data from the ONS.
However, advances in medical science that are keeping us alive for longer have yet to make similar progress in dealing with conditions such as Alzheimer’s and dementia. This means that over the coming decades, many more people will require some form of part- or full-time care during retirement.
Research published by the Institute for Public Policy Research in 2014 suggested that the number of older people in need of care is expected to outstrip the number of family members able to provide informal care for the first time as soon as 2017. The report found that the average annual cost for an older person who pays for a typical package of care has increased to £7,900 a year, while home care now costs an average of £25,000 and a nursing home place £36,000.
Earlier this year Dr Ros Altmann CBE, the Government's Older Workers Business Champion, referred to estimates suggesting that around half the population over 65 will need to spend at least £20,000 on later life care, with one in ten facing bills in excess of £100,000.
The cost of care
From April 2016, the cap on care costs from the age of 65 will be set at £72,000. Currently people face unlimited costs, although those with limited assets receive financial assistance. Under the change, once an individual has spent that sum the state will pick up the bill for care, although they will still be liable for £230 weekly living costs if they are in a care home.
There have been various initiatives to encourage people to take out insurance cover for future care costs, but a survey conducted by the BBC earlier this year found that the major insurance companies had no plans to introduce products to help people plan ahead for their care needs in old age.
One of the reasons mentioned for this lack of interest is that few people were prepared to defer consumption today to pay for an event which may not occur. According to Professor Les Mayhew of Cass Business School, “Hardly anyone is interested in putting savings aside for their future care needs…the call from Government to develop long-term care insurance products has also been very disappointing.”
Do you expect to be cared for by your children in your later years? If so, have you made any provision for the added costs of multi-generational living, such as home alterations or even moving to a property that suits all your needs?
The good news for those saving for retirement is that financial advisers are keen to offer advice on long-term care funding.
Figures compiled for the Association of Professional Financial Advisers (APFA) show that almost two-thirds (65%) of financial advisers are planning to advise people on their options for funding long-term care. “Funding long-term care will mean people have to make far-reaching financial decisions, so access to advice from a regulated firm will be vital,” says Chris Hannant, AFPA director general.
“There is no magic bullet to solve this [social care funding] crisis,” admits Dr Ros Altmann. “The best we can do is start to tell people that the state won’t pay, help them realise just how little the state covers and that they are likely to need their own funding as well.”
Issues to discuss with your adviser:
- Any information on your health and/or family history that might indicate whether you are more likely to need care in later years
- The extent to which you might be able to receive care support from family members
- The costs you would be likely to face
What does this mean for me?
- Rising health care costs have the potential to cause what financial advisers would call ‘asset erosion’, which often takes the form of someone having to sell their main asset – their home - to pay for their care needs in later life.
- The attraction of a fund investment is that you can create capital outside your home and draw an income from that capital, which can then be used to cover a major unexpected expense such as long-term care charges.
- A key element of a flexible approach to retirement financial planning is regular reviews with an independent financial adviser.
Please remember, the value of investments and the income from them can go down as well as up and you may not get back the amount invested.
For more information on retirement solutions from Schroders, visit www.schroders.co.uk/retirement.