The number of people dependant on care is forecast to almost double from 2.1 million in 2001 to four million by 2030, according to the Personal Social Services Research Unit. And this demographic shift is already putting huge pressure on state finances.
The Government went some way in recognising the problem in the comprehensive spending review. Amid £81bn of public funding cuts, Chancellor George Osborne promised an additional £2bn of funds for social care by 2014/15.
With the cost of providing care set to hit £6bn over the next four years, the additional funding is welcome. However, experts say it will only provide short-term relief.
Saga director general Ros Altmann says: “We are still heading for a crisis in long-term care unless we take seriously the issue of funding for the future.”
The fact that the additional funding is not ringfenced at a time when council budgets have been slashed by 28 per cent over the spending review’s four-year period is a major concern. The thinktank Policy Exchange calculates that public spending on long-term care totalled £16.7bn last year, of which £7.2bn (or 44 per cent) came from local authorities.
Partnership head of corporate affairs Jim Boyd says: “Cuts to local authority budgets will have a dramatic impact on their ability to meet the needs of social care, irrespective of the additional £2bn.”
A Government commission into long-term solutions for the crisis is due to report next July. Proposals could include voluntary insurance premiums or a “death tax” that allows local authorities to put a charge on a property, to be recovered after the owner’s death.
But for the foreseeable future, people who do not qualify for state aid – known as self-funders – will continue to have to meet the cost of care. Boyd says: “Never before has there been such a need for financial advice and products in this area.”
While the care crisis does represent an opportunity for IFAs, it is one that few have seized. Of the 30,000 IFAs in the UK, Partnership estimates that only around 5,000 are qualified to give advice relating to long-term care products – and they may not necessarily offer this service.
The annual cost of self-funders running out of money – thus falling back on state assistance – is estimated to be £1bn every year, with the potential to rise to £2.75bn by 2030. Around 40 per cent of people entering the care system are self-funders and there is a growing awareness that financial advice is crucial to ensuring they are able to cope with the full cost of care.
P&P Invest partner Kevin Pattinson says many of his clients are looking for guaranteed forms of funding such as long-term care plans that pay for care home fees for the client’s lifetime in exchange for a one-off premium. Others purchase index-linked life annuities (although these might not cover rising care home fees) or income investment portfolios.
The fact that many people about to enter long-term care have lived through the biggest housing boom this country has ever seen makes it inevitable that property will also be looked at as one payment option.
Selling up is one option but Just Retirement head of research Nigel Barlow says that in many cases people prefer to get care in their own homes because they do not necessarily require 24/7 care and would prefer to retain some of independence.
The 2008 long-term care green paper showed that one million people received local authority-funded social care in their own homes compared with around 259,000 in residential care homes.
Barlow: ’People should be able to wrap all their assets into one holistic solution that works across a number of different circumstances rather thanhaving to grub around to find money’
The trend is likely to be the same among self-funders and equity release is one way they can pay for care without the need to sell or downsize.
Barlow says: “This is an area where the take-up of equity release is likely to increase, probably quite substantially.”
Once the Government decides on a long-term strategy for coping with the cost of care, there may be other options that advisers are able to offer clients. Barlow does not believe that insurance is necessarily the way forward – partly because most people do not think having to go into care will happen to them. Other suggestions include allowing people to divert part of their pension to pay for care or increasing annuity income once a person is admitted into care.
Barlow says: “People should be able to wrap all their assets into one holistic solution that works across a number of different circumstances rather than having to grub around to find money. Such changes would also provide IFAs with additional tools to help clients.”
While offering advice about long-term care requires a good understanding of non-financial considerations – from the benefits system to the emotional side of going into care – there are many potential benefits for IFAs.
Pattinson says the majority of people seeking advice for long-term care have power of attorney and are acting on behalf of their parents. Usually aged between 45 and 65, they are most IFA’s target audience.
“There is an opportunity to provide these clients with ongoing advice. If you do a good job for their parents, there is no reason why they will not continue to work with you on their own financial situation.”