Long-term care in the UK is facing several challenging headwinds, not least demographics.
The exponential growth in the number of people aged 60 plus has highlighted the need for better long-term financial planning.
According to the Office for National Statistics (ONS), the number of people in the UK aged 65 and over is set to become 25 per cent of the entire population by 2046.
Key findings from the latest data show:
■ ONS data for 1981 put the number of people in the UK aged 65 and over at just 15 per cent of the UK population.
■ The UK population of people aged 16 to 64 increased by 4m between 1981 and 2006.
■ The average (mean) age of people in this group increased from 38 years to 40 years over the same period. As a nation, we are getting older.
According to the graphic below from the ONS, by 2031 the UK will see its highest ever proportion of people aged 85 and above.
Add to this the well-documented growth in the number of people aged 100 plus and it is clear from the statistics that as a nation we are living longer, and generally in better health.
While traditional guaranteed income-for-life solutions are designed to pay out over a long period, these plans are designed to pay a comparatively large benefit over a relatively short period Steve LoweThe growth in this age bracket is down to various factors such as a significant reduction in the number of people who have been lifelong smokers.
There has also been better advances in healthcare and medical technology, as well as better diets, hygiene and lifestyle in the UK.
However, for how long will this good health last?
Data from Just Retirement suggests 433,000 adults live in residential care settings across the UK.
The effects of ageing on our bodies, such as increasing blindness, dementia, age-related diabetes and prostate cancer, have been well documented.
More people in the UK will need long-term care and the state, which is already overburdened, cannot afford to keep picking up the bill.
A typical care home in the UK costs about £29,558 a year just for residency, according to Partnership.
This cost does not include the cost of nursing care.
In the south-east, care expenses can be up to 50 per cent more than the national average, Partnership added.
| Dilnot and the Care Act 2014 |
Academic Andrew Dilnot had been commissioned by the government to investigate the issues with an ageing society and the need to fund long-term care after retirement. His proposals under the 2011 Dilnot Commission led to the eventual implementation of the Care Act 2014, which finally came into force in April 2015. The element introduced last year ensured changes to care and support, highlighting the need for financial advice. According to guidance from the Department of Health: “In April 2015 we introduced a new national level of care and support needs to make care and support more consistent across the country; new support for carers; and deferred payment agreements for care costs.” The second part of it, which Mr Dilnot had championed, was implementing a cap on care fees. Initially he had suggested £35,000 but this was changed by parliament to a cap starting at £72,000. However, although this was originally scheduled to come into force this year, the cap is not going to be brought in now until 2020. In November 2015, sister paper Financial Adviser reported the delay could affect 80,000 older people over the next decade. |
How immediate needs plans can bridge the funding gap
Insurers used to offer pre-funded care plans, but have not done so for the better part of a decade. That said, some clients may have legacy plans which will pay for residential care when needed.
These days clients can take out an immediate needs care fee payment plan - often called a ‘care fees annuity’, ‘immediate needs annuity’ or ‘immediate needs plan’.
According to the Association of British Insurers (ABI), such plans are best described as “a type of annuity which pays out a guaranteed income for life, to help cover the cost of care fees in exchange for a one-off lump-sum payment”.
Janet Davies, co-founder of long-term care fees advisory network Symponia, calls immediate needs annuities “dedicated, tax-efficient financial policies available to those with an impaired life, failing an activity of daily living, and/or suffering from a loss of mental capacity.
“While they are not a universal panacea, they can, in the right circumstances, provide an ideal solution.”
How they work
Immediate needs premiums are worked out by combining age, health and an estimate of the person’s life expectancy, with the amount of benefit required.
According to Brian Fisher, long-term care marketing manager at Aviva, they are only available to applicants over the age of 60 who require formal care.
“They are individually underwritten by the product provider so the premium reflects accurately the applicant’s health and life expectancy”, he explains.
They will not be right for everyone but they should always be considered alongside all the other options for paying for care Janet DaviesThe annuity is funded by a single premium at the start of the policy and, once set up, it will pay out the agreed amount at regular intervals.
As Ms Davies points out, the annual benefits can increase over the years to help “keep pace with care fee increases”, whether linked to the retail prices index or set up with a particular percentage.
Steve Lowe, group communications director at Just Retirement, comments: “While traditional guaranteed income-for-life solutions are designed to make payments over a long period, these plans are designed to pay a comparatively large benefit over a relatively short period.”
When it comes to immediate needs plans, there are “variations on the theme”, as Joanna Fowler, head of product for Saga Personal Finance, explains.
She outlines the variations as:
■ Deferred needs annuity.
■ Immediate needs care annuity with linking.
■ Capital protection.
According to Ms Fowler: “Deferred needs annuities undertake, for a set premium, to pay a regular income towards a person’s care costs for the remainder of their lives, afer a set period (usually two years) has elapsed.
“Immediate needs care annuities with increases linked to the retail price index (RPI) or a set percentage each year are more expensive, but provide additional peace of mind as it lessens the amount the policyholder has to pay in the future.
“Capital protection allows individuals to protect up to 75 per cent of their premium until the percentage has been paid out in total, either to the care home or the estate.”
| Key features |
Cost - The average cost of an immediate need care fee payment plan is £69,000, according to the Money Advice Service. (Compare that to the average £29,558 annual cost of care home residency). Provision - Clients can get care in their own home or in a residential or nursing home. Duration - Payouts will last until the client no longer requires care (usually upon death). Flexibility - The product can allow the payment to go directly to a carer, the care home or the policyholder. |
However, in its factsheet, the ABI states there are restrictions on who can take out an immediate needs annuity - a savvy client in robust health wanting to plan for every eventuality will not be eligible.
Clients must be medically assessed as needing care to apply for this type of plan, and the level of premium depends on the individual and varies by a person’s age, health and choice of care home.
Ms Davies adds: “An immediate care plan provides peace of mind and enables the person in care to have financial independence, dignity and choice of where they receive care.
“They will not be right for everyone but they should always be considered alongside all the other options for paying for care.”
