Meeting consumers' long term care needs

People may be living longer due to advances in medical science but they are not necessarily living healthier in old age. In 2008, 1.3 million people in the UK were over 85 and it is estimated that by 2033, this figure will have doubled; many of these will need continuing care for various lengths of time. Long term care (LTC) needs will increase, presenting a real problem for the government and local authorities who are charged with providing care for elderly people, particularly with the constraints of public finances resulting from the debt crisis.

In March 2010, a cross party group paper on the LTC funding crisis made a number of recommendations for resolving the current complicated and rather arbitrary system of providing long term care in the UK. Long Term Care of the Elderly: Shaping the Future highlighted the shortcomings in the current care system but more importantly from a financial planning perspective, the report found that the system penalises those that have built up even only modest savings, which is a clear disincentive to making ones own provision. By contrast, the indications are that the new coalition government will be willing to collaborate with the industry to encourage insurance-based solutions.

In July it was announced that a four-member LTC commission will consult over 12 months with the care industry before delivering policy proposals a year after that.

Defaqto believes that it is important that the industry grasps the opportunities presented by the commission’s work as the LTC insurance market has never really got off the ground. Most of the sales have been for immediate care plans; essentially impaired annuity based products that are purchased when care is needed or likely to be needed within the next few years.

Axa and Partnership Assurance offer these products, but the problem is amassing the purchase price in the first place, which typically has to come from the sale of the person’s property. This is unpopular since people want to pass on a legacy to their family and some families may wish the assets to be preserved rather than dissipated on care home fees.

Alternatively there are pre-funded or insurance-based long term care products, but sales have been very low and just recently the main provider, Partnership Assurance, announced that it was suspending sales of its pre-funded long-term care product. The product will not be completely removed until after the government’s LTC commission makes its policy recommendations, but the move is indicative of a poorly served market.

Advisers too are indifferent to LTC; in our research, we found that few advisers were touching on the subject in client interviews. Just 13% of advisers said they discuss risk-based plans with clients; 18% said they advised on immediate care plans; 30% said that they covered LTC funding in the context of pension savings; but a massive 53% said they didn’t advise on LTC funding at all.

If the commission’s recommendations encourage greater personal provision, pre-funded or risk-based products may well be the plan of choice for clients. The recommendations could dovetail into the relaxation of the rules relating to deccumulation of pension funds, which would potentially provide another funding strategy.

For those who can’t or won’t make provision, there will always be ways for converting assets to collateral against care home fees such as immediate care plans and equity release. Also, Partnership Assurance has recently launched the Care Plan Payment Option, a form of mortgage that can be used to buy a Partnership care plan, providing a level of guaranteed income.

The LTC market has great potential and advisers need to get geared up to tackle the subject and take advantage of the increased awareness leading up to the commission’s findings in 2012.