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Scotland the brave

The unexpected proposal by the Scottish Executive to offer free personal care as well as free nursing care for the elderly has caused a flurry of media speculation about whether Westminster will be forced by pressure groups to follow suit.

It took 18 months of deliberation for the Government to respond to the royal commission proposals for funding long-term care. The writing was on the wall by the time the NHS plan outlined the Government&#39s proposals for health spending last July.

The Treasury had already set a working party in motion to look at insurance products which would help many elderly people to protect themselves against the significant care costs they would still be obliged to meet. Cat standards, which are likely to be in place before the end of the summer, are the result of this process and full regulation is likely to follow in the early part of next year.

It does seem unlikely that the Government will be easily swayed from its course. It is proposed that the state pays for nursing care in nursing homes but can it really afford to go further and let elderly people with assets off the hook in England and Wales?

It has been suggested that the Scottish proposals might add around £100m to its bill for care but south of the border the figure for a similar package has been put at closer to £1bn and, of course, the elderly population is growing all the time.

As of April, the means-test threshold will be going up marginally to just over £18,000 and, whatever happens, people will still have to pay for the accommodation costs involved in care.

It will not be clear whether or not the Scottish proposals will be implemented for another few months.

They do need to consider the fact that care for the elderly at the moment relies heavily on an army of informal carers who may well view this as an invitation to shift this burden on to their local authority. I cannot see well-off English pensioners in need of care heading for the Scottish borders, as some commentators have suggested.

I have seen no evidence that elderly people in the South have headed to the North of England for their care on the basis that the nursing homes are cheaper.

My view is that IFAs should set the political debate to one side and stick to the basics in any discussion about LTC insurance. If you get into a debate with a client about the ebb and flow of political opinion, then a common-sense discussion about financial needs will almost certainly be swept away on the tide.

Stick to the facts. Over 90,000 elderly people are added to the list of those in need of care each year. One in four of us will need LTC in old age. Around 40,000 elderly people have been selling their homes each year to pay for such care. This housing asset will continue to be at risk even with the advent of local authority loans to pay for care because any loans will be set against the value of the house.

I suggest that IFAs talk to their clients about what would be left to pay for care from their retirement income. A good starting point is to consider the costs of care at home. After all, this is where most people would prefer to get care.

A general package of professional help to provide basic personal care (assistance with washing and dressing can cost almost £11,000 a year). If a partner or spouse can provide informal care, such as cooking and cleaning, then these domiciliary care costs can be kept to a minimum. If not, they will also have to be included in the cost of care.

Remember, IFA clients only need to cover the gap between their income and expenditure and insurance premiums can start from around £35 a month.

I make this point about the minimum premium because a number of IFAs have said to me that, in their understanding, LTC insurance needs to protect a £20,000 a year risk. This is not the case. Most people have some available income to go towards the cost of care. Discussing the gap will set your clients along the path to appreciating how this form of protection will work for them.

LTC insurance protection is inextricably wrapped up in retirement and inheritance planning. I do believe it is almost impossible to ignore the impact that care costs can have on lifetime finances as well as the impact on the estate your clients want to pass on to their children or grandchildren.

Why wait until the proposed introduction of full regulation next year, at which time there will be a statutory obligation to talk to clients about this area of risk?

Any discussion that advisers have with clients could also cover choice as well as risk. In choosing a nursing home, will the client want “three-star” accommodation if they have been used to “four-star or five-star” hotels?

Will they want to cushion the blow of needing care at home with the support services of their choice, including, for example, someone to do the gardening? Policyholders who get care at home can tailor their cash benefits with services to suit their individual needs. This can make a huge difference to the quality of an elderly person&#39s life, not to mention the strain which can be lifted from their spouse.

So, there are two issues for them to think about. The first is satisfying a financial need and protecting against financial risk and the other is the standard of living they want to protect and personal choices they will want to preserve.

There is every good reason to raise this subject now. First, clients are likely to have seen the publicity surrounding the Scottish decision. Westminster has made its own position clear and there is no reason to expect them to change their minds as far as England and Wales are concerned.

Cat standards are going forward and represent good news and we expect them to be introduced by the end of the summer.

If you are talking to local solicitors, immediate care plans to help cap the costs of care for elderly clients are often their most pressing requirement. But capping the potential cost of care can be equally important for anyone retired or close to retirement who wants to plan ahead.

An open-ended risk can and does stop elderly people from enjoying what they see as their little extravagances because they just do not know how much money they might need if their health fails in their final years.

The basic question your clients need to answer in any preliminary discussion is, do they agree that some form of protection against this form of risk makes sense? If the answer is yes, the details of cover and cost can follow.

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