Financial advisers have called on insurers to develop pre-funded long-term care solutions but little has emerged in the form of well-developed off the shelf solutions, the founder of Protection Review said.
A Metlife UK survey this morning (13 August) found that 90 per cent of a nationally representative sample of advisers believe there is space in the current long-term care market for new products to be designed.
Possible innovations on long-term care were outlined in a recent report by the government’s new champion for older workers, Ros Altmann, including:
• allowing tax-free pension withdrawal if the money is earmarked for care;
• introducing an Isa allowance if funds are being used for care;
• launching family care savings plans; and providing workplace care savings plans alongside auto-enrolment.
Andy Couchman, founder of Protection Review, told FTAdviser that as part of the research for his annual publication, a survey of Association of Professional Financial Advisers’ members found 59 per cent agreed insurers need to develop and strongly promote new ‘pre-funded’ solutions.
He said: “The fundamental truth is that the UK has an ageing population some of whom will see their wealth eaten up by care fees and their family’s time eaten up by care worries. Surely, insurers should be more a part of the solution than they are now?
“The majority of our respondents seem to agree – but little has yet to emerge in the form of well-developed off the shelf solutions.”
Two annuity providers have suggested that older people should use the equity in their properties to help fund long-term care costs.
Speaking to FTAdviser, Stephen Lowe, Just Retirement’s director and retirement income specialist, said that it is already too late for those starting to think about care funding in later life.
“The only lifeboat, to rescue people in the next 20 years, are solutions that make use of people’s most significant asset – the home.
“People aged 65 and above have around £1,000bn of housing equity, this dwarfs most peoples’ pension and other assets. Most people are averse to pre-funded savings schemes and that’s where housing based solutions could work, because the money is already there.”
Mr Lowe suggested that the challenge is to create a mechanism that incentivises people to make a pledge earlier in their life, possibly to ring-fence part of their housing equity into a virtual care account.
“The incentive would be provided by the state, this could be a matching arrangement or a means-tested benefits disregard. The individual is not giving their money away – if they never access care the money remains in their estate – but if they need to spend money on care then the care account is used for this purpose.
“People will not even consider making these pledges until they understand they have a responsibility to pay for social care. The government recognise this and have committed they will develop an industrial strength awareness building campaign.”
Thomas Kenny, head of technical pricing at Partnership, agreed that equity release could be a solution for people who have most of their wealth locked up in their property but are unable to sell as their spouse or a dependent is currently living there or want care at home.
“In addition, immediate needs annuities could be a solution for those people who do not have any existing long-term care protection, but want greater financial certainty at the point of needing care.
“Partnership is naturally considering the various options and will continue to review opportunities to develop and expand its product range. We do however believe that there are products available at the moment which can be very helpful for those looking to fund care.”
