The funding of long-term care has beena nettle that successive Government’s have failed to grasp. The emotive debate was reignited last July with the formation of the Dilnot Commission, which delivered its recommendations on how to cater for an ageing population in a cost-conscious climate this week.
Partnership Assurance managing director Chris Horlick has been heavily involved in campaigning for an increased role for financial services in funding long-term care and he believes the Dilnot report could facilitate this, provided the Government’s cost-cutting does not get in the way.
Horlick says: “It is clearly one of the intentions of the Dilnot Commission and the Government to attract insurers into the market. The increase in our ageing population is going to continue for some time. If IFAs look at their existing client banks, I bet they could find a whole lot of clients whose parents are in or about to be in long-term care. It is an issue facing everybody.”
If it is such a big issue, why are insurers not in the market already? Horlick believes a lack of public awareness is to blame. He says: “There is a complete absence of understanding that social care is something they may have to pay for. People do not have to be massively wealthy to fall into the category of a self-funder but they still think the NHS will pick up the tab.”
Horlick thinks that this lack of understanding has stunted the long-term care market but he bel-ieves the Dilnot report will stimulate some much-needed public discussion around long-term care. He says: “There is a need for a very, very public debate in this area.”
According to a recent Anchor Trust survey, 44 per cent of people think the Government should cover the whole cost of care, which is why even the prospect of a self-funded cap, with the Government covering any excess, may not be popular with some. Horlick believes any move to get the public to foot some of the bill themselves will not be met with open arms.
The cap will be more well received by the industry. Horlick says: “It presents an opportunity. You could devise an insurance plan that paid out £35,000-£50,000 over a time period to someone requiring long-term care.”
Horlick believes clarity is going to be paramount. He says: “Only once insurers know what the state offer is can we look at it and say ’yes, there is an opportunity for us there,’” he says.
One thing Horlick is certain will arise from the Dilnot report is an equity release boom. “I can see equity release being a key method for people to release some asset value from their own home to fund long-term care,” he says.
Horlick also envisages a further development in this area. He says: “By releasing equity from your home and annuitising with those funds, you can guarantee that you will be able to cover the cost of your care for life. If you release the equity and put that in the bank, what do you do when that runs out? There is an opportunity to stop the catastrophic loss.”
With increased usage of equity release will come higher demand for impaired equity release products, according to Horlick. Partnership recently launched an impaired health equity release loan.
“Of those people who benefit from annuities, 40 per cent are eligible for enhancements,” says Horlick. “People buying equity release are typically between aged 68-70, which is older than your average annuity-buying cohort, so the potential is huge.”
Pension unlocking has been cited as a possible solution
Pension unlocking has also been cited as a possible solution. Horlick says he can see people taking this route but he believes there are obsticles. “People already do not save enough for their pensions. But if there was some incentive to commute some of your lump sum towards saving for care, it would be more attractive, such as tax incentives or fund matching. The Dilnot Commission is keen to encourage as much flexibility as possible so that people are capable of self-funding,” he says.
Labour Shadow health minister John Healey recently floated the idea of a Nest-style partnership between the state and individuals to help fund long-term care. Horlick says this is an interesting proposal. “It could work because what Dilnot is doing is renegotiating the contract between the state and the individual. All these solutions seem reasonable but because so many people are sitting on staggering housing wealth, it seems inconceivable that releasing some equity from their homes will not be part of the solution.”
Horlick is aware of the reputation of equity release as risky but thinks that Dilnot may also go some way towards redressing that. “People do not want to face this catastrophic loss but once people have sold their homes and moved into care, that is when the long-term care sector has to say to them: ’Right, now you need to go and get some specialist financial advice.’ I think that it is apathy on behalf of those people who are in a position to signpost people to financial advice that is the problem,” he says.
This will only happen once trust is reinstated in financial services, however. Horlick says: “Trust is always going to be a barrier. We are saying to the public, ’Do not go to any IFA, see a specialist with particular training.’ The Society of Later Life Advisers goes way beyond the normal industry qualifications and IFAs are starting to want to enter this space because of Dilnot and the ageing population.”
The ultimate decision on how long-term care will be funded lies with the Government. Horlick says: “The coalition can be praised for what it has done so far. It set up the Law Commission report and now has the Dilnot Commission reporting. It all comes after however many years Labour were in power, when Blair was saying that it was an outrage that people have to sell their homes to fund care and doing precisely nothing about it.
“The Brown government tried to address it in a final throw of the coin but it was too little too late. The coalition looks as though it wants to address this.”
Reports of coalition in-fighting should not be taken too seriously, according to Horlick. He says: “I think there is a desire to seek consensus. There are certainly some concerns in the Treasury about cost but I think the problem lies with MPs.
“They are too concerned about the Daily Mail position, which is outrage that people have to sell their homes. That is not the outrage. The outrage is that an absence of advice means people end up spending everything they have released from their homes.”
Horlick believes that whatever Dilnot recommends will not be welcomed by the public or the media. “I can see the press giving him a slightly hard time. It is just too easy to go for a headline that will sell a few papers,” he says.
Press negativity and Government wranglings are not the only obstacle Horlick sees to successful implementation of Dilnot’s recommendations. “I fear that changes to the Lansley NHS reforms could halt this. Clearly, Lansley is not going to happen in the way it was proposed, so we will not get the projected £20bn saving which would have helped fund social care reforms.”
Horlick also cites timetabling as a potential stumbling block. He says: “I see Dilnot coming into effect in 2014-2015. That is election time. Are you really going to go into an election saying ’Hey, electorate, we are going to ask you to fund your own care’? You are not. I hope I am wrong but I can see Dilnot’s recommendations going back into the too-difficult box.”
What Horlick would like to see happen next:
1: “Clarity around what the state offer is. That is the most important thing because when people have that they can begin to plan”
2: “A proper and full public debate on the issues”
3: “A requirement on care providers, advisers and charities to signpost advice for self-funders”
4: “Incentives for people to make provision to fund their own long-term care”