After 42 years in the banking industry, Sir Derek Wanless has spent the last few years more concerned with the cost of social care than the cost of borrowing and lending.
In 2002, Wanless was asked by the Treasury to review long-term healthcare provision in the UK. In 2005, he was asked by charitable research organisation The King’s Fund to review the state of social care for older people. Fast forward three-and-a-half years and Wanless is glad to see that the concerns his social care report raised over the cost and increased demand for long-term health and social care for the elderly are finally being listened to by political parties.
He says: “We said that the next election should really be fought in part on social healthcare for the elderly. The parties are starting to think through what they want to do and we have recently seen proposals for long-term health from both parties.”
The Government and the Conservative Party have both outlined their proposals for reform and the debate cannot come soon enough for Wanless.
He says: “Nothing has changed from our 2006 report – budgets have been squeezed below the levels that were required by the demands of the changing demographics. There have been some marginal movements by the Government but overall not enough money has been put into the service and as a result, the quality of the service and the number of people who benefit is less than it should be.”
However, Wanless is careful not to put the blame on any one Government. He says: “Care for the elderly has not been right for a long time. It is not a party political thing whereby it used to work and now it has got worse – it has always been struggling to catch up and has always been the poor relation to other social health- care areas.”
It was the realisation that social care for the elderly was being overlooked that prompted The King’s Fund to ask Wanless to chair its review of the sector in 2005.
When the final report was published in 2006, it highlighted a system that was already under financial strain despite the huge sums of money involved. It reported that in 2005, one million older people received some form of publicly funded social care. Local authorities spent £8bn on care for the elderly (with £1.6bn being clawed back through means testing) and a further £3.7bn was paid out by the Government to individuals on non- means-tested benefit. This was topped up with a further £3.5bn from individuals’ own pockets.
The Wanless review suggested that a significant increase in funding is required to cope with the combined effect of substantially more people needing some form of care and progressively fewer people being able to contribute to the cost of care in later life.
The review looked at a range of alternatives to the current system and suggested a “partnership” system, where the burden of care is shared between the state and private initiatives, as the best way to improve the service in the next 20 years. Under this system, a universal entitlement to a minimum level of care would be topped up either by personal contributions, private long-term care insurance or equity release.
This proposal is very similar to one of the central proposals of the Government’s recent long-term healthcare green paper.
Wanless says: “We said people should have a certain entitlement and should pay if they want more. We admit that the details need debate and there are lots of variations on themes but essentially there needs to be a universal service.”
A catalyst for younger people to dip into their pockets
The downside of this approach is that it will cost the taxpayer more. The 2006 report suggested this approach would cost the state around £9.7bn, with individuals funding an additional £4bn.
Wanless is not apologetic about the fact that any solution will cost the taxpayer. “It is inevitable that the money to fund long-term healthcare will have to come from the population one way or another because we need to find more of it somewhere.”
But how would a government convince the UK population that they must spend more money on a service that it may or may not require when it gets older? Wanless says the state of the current system will hopefully be a catalyst for younger people to dip into their pockets now. He says:
“Younger people are currently seeing their parents and relatives in care and are often unhappy with what is provided. They know we can do better, not just with the extreme cases but also the cases where people need some care, especially where a little could make a big difference.”
Wanless says it is this middle ground – people with a modicum of savings who are in need of a limited amount of care in their own home – who are being “squeezed” out of the system right now.
He says: “A partnership scheme would not mean more people would have to go into care homes, quite the opposite. It would often help people in their own home. A package could be individually tailored to these people – they would still need to be assessed by a local authority possibly but that assessment could be put into a ‘partnership arrangement’ as you would if that person were going into a care home.”
The funding problem facing long-term healthcare also encroaches into the pension debate. Wanless says a successful personal accounts scheme would go a long way to helping more people fund their elderly healthcare. But he warns that if the accounts do not raise enough money, they could have a detrimental affect on people’s ability to fund healthcare.
He says: “Personal pensions will only help if they produce sums which make people better off in retirement than many pensioners currently are. Is that going to happen? It depends on people’s investment potential and it depends on how late people retire.”
For it to happen, says Wanless, there needs to be new thinking around the whole longevity space. “The more longevity and demographics change, the bigger the impact on pension funds and on people’s own future financial arrangements.”
Wanless also chairs the Longevity Science Advisory Panel, backed by Legal & General, which assesses the advancements of longevity alongside bigger demographic, social and economic consequences of more people living longer.
He says: “If people want to take annuities in the future and longevity continues to improve, then clearly people will either have to retire very much later or will have to admit that they will not have as much pension income as they first planned. This is where people will need good advice and information to make their own assessments.”
Future governments will play with the parameters of the report but my hope is that the underlying structure will remain
While Wanless admits that saving for retirement is a hard sell, he argues that it is the job of the pension industry to take on the task, however unpopular it may be. “A lot of people have this vision of retirement that’s holidays and living for a long time, spending time doing lots of exciting things. But someone has to bring people up short and say ‘how are you going to do that?’”
Wanless also warns that the rise of personal accounts will mean people may require even more help because many will think that by creating a mandatory defined contribution scheme, the Government will have bridged the pension-funding gap.
He says: “The danger is that people get misled by the notion that once they sign up to their minimum level, that is enough to fund their retirement. We need people there to tell them that the minimum amounts are not going to be enough. They need good information and the private sector can help that.”
As 2010 approaches, both the Tories and the Government will begin fleshing out their proposals to address the issue of long-term healthcare. Wanless hopes both take note of his review’s findings but is concerned that any further proposals will be spin and electioneering rather than useful fuel for the debate.
He says: “I hope this will not remain a political issue. We created a report so as to get a degree of cross-party support for the proposals we offered. We designed a policy that was not left or right wing. Future governments will obviously play with the parameters but my hope is that with cross-party support it will only be tinkered with at the very margins, leaving the underlying structure.”
Wanless thinks this last point is crucial. If all the problems are to be solved, he says any new system of saving and funding for long-term care must be clearly and firmly established and must not be at the mercy of any future political machinations.
Sir Derek Wanless
Trained as a banker after receiving a scholarship to study mathematics at Cambridge.
He left to work for NatWest Bank in 1967 and stayed there until retiring in 1999 after working his way up to chief executive.
In 2000, he became a non-executive director of Northern Rock, leaving in 2007.
In 2001, he was commissioned by the Government to review the long-term trends for the provision of healthcare in the UK.
In 2005, he was commissioned by The King’s Fund to review the supply of social care for the elderly. He was knighted in 2005 for public service
Wanless review key points:
- By 2026, the number of people over 65 with a dependency will rise by 53 per cent. The number of people aged over 65 will rise from 8.17 million in 2007 to 11.59 million in 2026
- Review proposes a partnership solution that would combine a universal entitlement with the ability to top-up funds using private savings or insurance schemes
- Predicts that if nothing is done to amend the current system, long-term healthcare could cost the UK £24bn a year by 2026. The implementation of the partnership scheme could cost the state £9.72bn and would cost the 1.49 million people taking advantage of it £3.9bn
- Such a scheme could be fuelled by long-term care insurance products, the use of equity release or by various financial incentives offered through tax breaks