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Ron Wheatcroft: New products are needed to help pay for care

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The publication on 21 January of a joint statement of intent on funding social care by the ABI and Government was an important step towards creating an environment which helps people to understand and plan for their long-term care costs.

Also published were the conclusions from a review by the Government, industry and other interested parties last year.

Some immediate reactions to the statement were quite negative, suggesting a lack of commitment from the insurance industry to help develop a market for financial products. I think this is unfair and that providers are, in principle, keen to develop products in time for the new funding model in 2016.

For any provider, deciding to enter a market requires a rigorous analysis of the costs and benefits of designing, managing and distributing products. For this to happen, we still need a clearer understanding of the care framework; with the Care Bill still working its way through parliament, it is too soon to commit to new products and, in some cases, legislative and regulatory change may be needed.

It is very unlikely, at least in the short term, that products will be developed which fit exactly with a person’s total need for care funding. A range of solutions will be required to help people meet care needs as they occur. The review identifies a number of options which will be explored over the coming months.

Fundamentally, however, people will need to save more.

Potential solutions at the point of need will use existing products such as immediate needs annuities and equity release. Consideration should also be given to how pension drawdown limits might be made more flexible to reflect disability and the need for care.

Greater pension flexibility would provide more choice for those prepared to forego some initial income. To achieve this, clarity is needed from HMRC on the circumstances in which a so-called disability-linked annuity could be written.

But even if allowed under current tax rules, an increase in benefit triggered by care could move the claimant into a higher-rate tax band. We need to work this one through.

Longer term, pre-funded products could be developed as a bolt-on to protection packages.

If pure protection advisers were able to present early pre-funding care options under ICOBS to clients as part of a wider discussion about long-term health needs, this could increase awareness and availability. Care benefits would be one more option to consider when thinking about protecting against the financial consequences of disability and death.

Regulators need to distinguish clearly between advice given at the point of care and services available to people who are considering care as part of their wider protection needs. Care funding is complex now and will remain so when the new deal comes in from April 2016. Timely and relevant information and advice to UK citizens will be essential, with Government and local authorities having a pivotal role to play. The rapid review is the first step. Now the hard work begins.

Ron Wheatcroft is technical manager at Swiss Re

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