Long-term care is a big issue. The Government has finally told us about its plans for funding LTC. The elderly will continue to be means-tested to establish what contribution they must make towards their care costs.
As we know, anyone with assets and savings over the means-test threshold (increased to just over £163.18,000 from April) will have to use their own resources to pay for most, if not all, their LTC costs.
The Treasury views LTC insurance as a suitable means of protection against these costs and is recommending Cat standards to give customers confidence in the products.
If you consider that the average house price in the UK is £163.106,850 (according to the Land Registry Q4 Report 2000) and the value of the home is often included in the meanstest assessment, it can be seen that the potential market for LTC insurance is considerable. But to what extent are people aware of the problem?
Do they think they should do anything about the risks? Who would they look to for advice? To answer these questions, I would like to share the findings of two pieces of research recently undertaken.
The most recent research was part of a continuing study into awareness and attitudes towards LTC among a cross-section of adults. The study aims to test basic knowledge of the problem of whether they know anyone who is receiving care and if they are involved in providing it. Here are some of the key findings.
Forty-seven per cent of the sample know at least one person who is receiving care and a quarter know two or more. The majority of people do not provide any care themselves.
When asked who they would expect to provide care, most respondents said they thought care would come from a number of sources – family (same generation and younger), social services, private care and friends.
Forty-one per cent in socio-economic group AB viewed private care as an option for themselves, with 47 per cent saying it was likely that they would need care.
Seventy-six per cent of ABs felt they would have to pay for care in some way but a significant proportion of those who owned their home outright (46 per cent) still believe the state will pay for care.
At the risk of bombarding advisers with information, I would like to put these latest findings into the context of two of the findings which emerged from research carried out last summer just after the Government announced its funding proposals for LTC in the NHS Plan.
From a sample of 402 people between the ages of 51 and 80, only 66 quoted the correct means-test threshold. Fifty-one per cent were not even aware of the meanstest threshold.
Ninety-nine per cent said they were currently making no plans for LTC insurance (we can guess this from the number of policies currently in force) but 51 per cent said they would be reviewing their finances.
What can we conclude from the research findings? A significant proportion of people know someone in need of care and those who do are more likely to feel that they too may need care in old age. So, experience may be a key trigger in the decision to buy LTC insurance.
Almost half of ABs, IFAs' target clients, think they will need care. Some know they will have to pay for care but do not seem to be aware of the full impact of care costs on their own finances.
A high proportion of the over-50s know they should be doing something about their finances but very few have got as far as looking at LTC insurance protection.
Advisers know that the AB group is more likely to look to them for advice but seemingly the older they get the more likely they are to consult their families. My own view is that such people may well believe their affairs are in order and they have no reason to maintain a relationship with their IFA. Of course, the IFA may well share that view.
For those IFAs who do not subscribe to that belief, what can you do? I believe you cannot afford to ignore the income potential of this market. Catering for old age already represents an important part of their business.
Advisers give pension, retirement planning and inheritance planning advice. LTC insurance is another piece of the protection jigsaw which helps people to control their lives in old age. We have an ageing population which, as each year passes, is made up of more and more homeowners used to exercising choice in how they run their lives. This must also apply to the choices they would want to make if they need care.
IFAs can talk to clients about LTC planning when they are advising on inheritance and retirement planning. They can revisit clients who are retired and bring them up to date on the Government's position on funding care.
Advisers can talk to clients in their 50s to establish what experience of LTC they or their parents have had. IFAs can also talk to solicitors and accountants because they will undoubtedly have contact with people in need of care.
Everyone has their own network of contacts and it is not my job to list every channel open to advisers. I simply want to provide the feedback we are getting from potential customers. Many are aware of the risk of needing care. They acknowledge the problem but so far have done nothing about it. Advisers should talk to a few clients and find out for themselves what they think.