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E&Y: Providers to launch long-term care annuities ‘in months’


Providers will continue to shun the pre-funded care insurance market but could launch new “immediate needs” annuity products within months after the Government confirmed it will introduce a cost cap.

Earlier this year the Government set out plans to introduce a £72,000 cap on long-term care costs from 2016.

The means test threshold above which people must pay all their care costs will also rise from £23,000 to £118,000.

Ernst & Young EMEIA financial services manager Dan Mahony says: “The reforms proposed by the coalition do not overcome the principal objections to purchasing a pre-funded care plan.

“In a market where it is difficult enough to persuade people to make adequate provision for their income in retirement, expecting a significant number of customers to save or set aside funds for the possibility they will require long-term care is a huge leap of faith.

“These changes, despite providing marginally more certainty over the potential costs, do very little to make the pre-funded option a more attractive prospect – not least because the ‘hotel’ costs remained uncapped as a potential liability.”

Mahony is more positive about the future of immediate needs annuities – long-term care insurance bought at the point the individual requires the cover.

He says: “Whilst we view significant growth of the pre-funded market as unlikely in the short-term, the reverse is true of the immediate needs market.

“However, the lack of providers and a scarcity of advice in this area have suppressed demand.

“We expect new providers to enter the immediate needs market in the coming months.”

Worldwide Financial Planning IFA Nick McBreen says: “Immediate needs annuities could be a useful part of the retirement solution for middle England but it is important people consider how to fund old age more broadly rather than expecting a single product to solve everything.”


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