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A consumer&#39s view

With unit trust sales and commission going rapidly down the pan, IFAs will have to scratch around for alternative sources of income. And long-term care provision provides plenty of opportunities.

We are supposedly all motivated by fear or greed. But if that is the case, then the findings of a recent survey by NOP, conducted on behalf of Age Concern, apparently buck this trend.

There is no doubt that the elderly fear becoming decrepit and in need of long-term care. But the NOP survey reveals how little older people are prepared to do to cope with the likely consequences of aging.

Some three out of four of the over-55s admit that they have not made any sort of provision for their potential residential care needs. Only 5 per cent of this age group have been realistic about what those needs are likely to be and have provided financially for this eventuality.

Peter Gatenby of Age Concern says: “The survey paints a picture of an aging population that is under the impression that it can rely on the Government for the provision of its long-term care and under-estimates the cost of care in a residential home by up to 400 per cent.”

Age Concern says that in future fewer of us can expect to rely on help from our immediate family. Two-thirds of families have never discussed the possibility of elderly parents needing help with basic functions such as dressing, bathing, shopping and cooking, or the costs of providing care in the home.

All of this is undoubtedly true. But where the survey gets things wrong is in its conclusions: “Most people still appear to be unaware of the devastating effect that a prolonged need for care can have on their savings and on their families.” True – but are the elderly seriously expecting their children to pay?

Moreover, the average stay in residential care is not long – no more than two years. The report goes on to state that the over-55s will not be able to rely on support from their family. It says that 56 per cent of the under-55s maintain that they will not be able to afford to look after elderly relatives should long-term care be required.

This may well be true. But even if children are not prepared to take on this burden, with home ownership now hitting nearly 70 per cent of the population, the wealthier seven out of 10 will have the asset of the family home to fall back upon.

Having said this, there is undoubtedly a real need for the benefits of forward planning to be explained to the elderly and their children – most particularly in the area of provision of care annuities.”

At older ages annuity rates rise dramatically – particularly if the individual is not in good health. Moreover, if a provision of care annuity is purchased, it is not treated as the elderly person&#39s income but is paid direct to the care home, gross, without deduction of tax, so your money goes further. The beauty of this is that because the annuity income is very high for those aged 85 and over, and the income is received tax-free, you may not have to use all the capital from the sale of the elderly parent´s home, to invest in the annuity.

And you cap the risk so that if the elderly relative lives way beyond their normal life expectancy, it is the insurance company which has to pay.

A provision of care annuity can be purchased as and when the need arises, financed by mortgaging or selling the property. For example, the purchase cost of the provision of care annuity to produce a tax-free income of £10,000 a year is £39,303 for a 90-year-old woman. At age 87, the capital required to produce £14,400 a year tax-free, is £56,266. These are real-life examples.

Curiously, not many IFAs seem to know of this type of arrangement and still try to sell the standard insurance-based schemes which are generally seen by the elderly as poor value for money.

Why pay for something you may never need? This is probably why so few of the elderly have made any provision for their future long-term care needs.

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