Impact of greater pension freedoms

The average age of an applicant of an immediate care plan is 87, says Brian Fisher, long term care marketing manager of Friends Life.

At present he says there is therefore little, if any, impact caused by the new pension freedoms.

Although there is little to directly link the pension freedom changes and reform of social care funding, Stephen Lowe, group external affairs and customer insight director of Just Retirement, says there is significant cross over.

Pensions are designed to provide income and Mr Lowe says the new rules give more flexibility, for example, by allowing guaranteed income solutions with payments that can increase later.

If people take lump sums to invest outside their pension, Mr Lowe says that money could be available later to buy a care funding plan.

Obviously if they spend it or give it away, it won’t be, but in some circumstances Mr Lowe warns that could be considered “deliberate deprivation” and reduce any local authority funding available.

Taking lump sums from the pension could have an impact on what state benefits are available because Mr Lowe notes non-pension assets may be means-tested.

He says: “The result of pensions freedom is to make this area even more complex than it was before, underlining the importance for people to take professional advice and to fully understand their options.”

For example, Frances Ross, product manager at Partnership, says rather than accessing a pension pot they may not need, a person could put this aside to pay for care later in life, secure in the knowledge that if they do not need this then they can leave it to their family.

She says there has also been some suggestion that hybrid retirement products, which are a tax efficient way in which to pay for care, may be developed.

However, Ms Ross says as the pension reforms were only introduced at the start of April this year it is still very early days.

When asked will more providers enter the market, Ms Ross says it is difficult to comment on the commercial decisions of other companies.

She says: “However, with an increasingly larger proportion of the population over-65 and more people likely to need are in the future, there is certainly scope for growth.”

Reform = innovation?

Just Retirement’s Mr Lowe adds that the government certainly hopes its reforms of social care funding will spark innovation and new entrants to the market. He says the government believes the proposed cap on care costs gives a target for any new products to achieve.

Just as importantly, Mr Lowe says the government hopes that the changes and the surrounding publicity will make many more people aware that they are expected to pay their own care costs, which should grow the market for products and advice.

Andrew Dixson-Smith, care fees adviser and director of Eldercare Solutions, says it is envisaged there will be more providers entering this market.

He says there are currently three providers offering this type of plan; Friends Life, Partnership and Just Retirement.

Yet in the past there was greater interest in providing this type of plan. From 1992 until around 2004 some product providers offered pre-funded long-term care insurance policies, Friends Life’s Mr Fisher points out.

These enabled consumers to protect themselves against the potential need for care in the future. Mr Fisher says unfortunately sales were low and consequently most companies withdrew from the market.

However he points out one or two companies have recently launched protection products that offer an option to provide some long-term care benefits. Some, such as former pension minister Steve Webb, have championed default products to provide funding later in retirement.

In terms of new entrants, Mr Fisher says immediate care plans are a very specialist product area requiring a great deal of expertise and experience to quantify the insurance risk. He says it remains to be seen if more providers will enter the market this time around.

Uncertainty of longevity has put off a number of potential providers, however Mr Dixson-Smith says with more than 40,000 people selling their homes each year to move into care homes the need is becoming greater and the need for proper regulated advice will increase.

Mr Dixson-Smith says currently only 10 per cent of self funders take proper advice while one in four self funders will run out of money.