Try explaining to the majority of consumers that they need to financially prepare for an event that may or may not happen, at an unspecified time in the future and at an unspecified cost.
Not an easy task at the best of times.
Then muddy the waters further by introducing the added factor that the government may fund some of this cost, at the local council’s discretion. These are the issues facing the long-term care market in the UK.
This is not a topic that advisers can afford to ignore, as 29% of the UK population is over-55 and needs to be aware of the need to make provision for the future as, to be frank, the government simply does not have the funds to provide universal care.
However, while this may be the reality of the situation, our latest Real Retirement Report published in September revealed that 70% of over-55s believe the state should fund their care.
This means a significant 30% of people now feel they should be responsible for contributing to their own care costs, a proportion that has increased over recent years as they economic situation has worsened.
While over-55s estimate that it is likely to cost £30,171 a year to cover standard care in a retirement home, even those who said they were prepared to contribute to the cost of their care felt they should contribute a total of just £3,610 a year.
In fact, this sum only covers about a month and a half of care fees in the typical UK care home, with annual costs amounting to £25,953 according to Prestige Nursing + Care.
The main question is therefore – what is being done?
Well, the government has taken steps toward quantifying the problem and finding the solution by appointing the Dilnot Commission and tasking them with this problem.
However, while their recommendations in July 2011 were generally welcomed, we will not know whether they will be adopted or what form this will take until April 2012.
Lack of clarity seems to be a common theme in the care market and the recommendations in the Dilnot Report, if enacted, will set the ground rules to help consumers plan for their own retirement needs and a set level of expenditure.
I would argue that this current lack of clear information is potentially the cause of people’s unwillingness to tackle this issue unless they have to, rather than the ‘head in the sand’ syndrome that is more often mentioned.
Clear guidelines provided by a central body will allow people to make concrete plans for their future, something that is difficult at the moment.
The current environment of uncertainty around care costs has led to almost a third of over-55s having concerns about meeting care costs.
And what about financial services providers – do they have a role to play in helping this situation?
Depending on the form that the Dilnot commission recommendations take (if indeed they go ahead in any form), we believe that we will see a selection of products and offerings evolve to fill this need.
These are likely to range from more advanced versions of today’s long-term care insurance schemes to savings products, but until we have clarity it is difficult to speculate.
For the 29% of the UK population aged 55 or over, products which focus on life-time savings are unlikely to be appropriate.
Use of existing savings is unfortunately not an option either as the average nest egg of the over-55s is £10,468 and 17% claim to have no savings at all. So where else can people look for funds to help pay for care?
A solution for many that is often overlooked is to pay for care in their own home and, to fund this, people can use what is often their largest asset – their home.
A typical over-55 has £213,462 worth of equity in their home and by using equity release, they can release funds to pay for the costs of care in the home as and when they arise.
This fact has not escaped equity release providers and SHIP is actively lobbying for clarification in this arena as it has significant implications for the market.
It is interesting to note that different sources are all now finding that consumers appear to be considering this option and Aviva has found that 43% of retirees already plan on using equity from their homes in order to pay for their care needs.
To plagiarize the Boy Scout motto, it is better to “be prepared” and advisers are in a perfect position to broach this subject with their clients.
Care is often an ‘immediate needs’ purchase, meaning options tend to be much more limited than if clients had planned ahead for their future care needs. As a result, it is essential consumers are given as much detail about the financial options available to them, when the time comes to meet these costs.
While the fog of confusion in the UK care sector is unlikely to clear any time soon, and while some people are always going to believe the state should pay for their care, we are poised on the brink of a real breakthrough in this sector.
By ensuring your clients consider all their options and make informed choices, you are providing them with some clarity in a very confusing world and encouraging them to take a holistic view of all of the assets available to them in order to fund the retirement they want and provide the peace of mind they deserve.
