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THE INVESTOR
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FUTURE PLANNING
Gallery Stock. Sources: 1 moneyadviceservice.org.uk, August 2017; 2 rosaltmann.com, August 2017; 3 pensionsandsavings.com, June 2017; 4 ageuk.org.uk, February 2017
The industry judges that most of us are resistant
to planning for long-term care and does not see
a market for more than the few solutions currently
available. In practice, many will have little option
but to tap into the equity in their most valuable
asset – their home; but those with other
investments have choices.They might earmark an
ISA for care, or ring-fence part of a pension; with
the latter, unused funds could be passed to the family
free of InheritanceTax in certain circumstances.
But such solutions don’t address the possibility
of extended time in care and the difficulty of estate
planning in such circumstances. For example,
£100,000 would cover only three years of care: what
happens after that if you’ve gifted away other
investments to your family? It makes sense therefore
to err on the side of caution in your planning.
A care (or ‘immediate needs’) annuity is one way
of building ‘boundaries’ to your care costs through
an income for life. Like a conventional annuity, its
cost is basically dependent on life expectancy.
Annuity rates remain very low but, provided the
income from the annuity is paid directly to the care
home, it’s tax-free.This solution provides peace of
mind in that there’s no need to worry about money
running out, and you can budget your care based on
a set amount of income; moreover, the rest of the
estate can be safely allocated to your family.
What about insurance?The long-term care
market is so small at present that it’s difficult to find
appropriate products. One possibility is whole of
life critical illness cover, including total permanent
disability cover.This involves monthly payments and
pays out if certain serious health conditions arise;
the lump sum could be used to fund care costs.
However you choose to play things, it makes sense
to consult a specialist adviser and start planning early.
T
he thorny question of how the
UK should meet the daunting
cost of long-term care for its
ever-growing number of elderly
people has flared up regularly,
most recently when Prime
MinisterTheresa May announced proposals for
dramatic changes to the system in the run-up to this
year’s general election.The ideas, which surprised
many and were soon unflatteringly referred to as
the ‘dementia tax’, were subsequently dropped and
a consultation promised.
The oldest members of the baby boomer cohort
are only around 72 – pretty young in long-term
care terms – so the need for support is set to
increase over the coming decades as that population
bulge moves through their seventies and beyond.
As things stand, anyone with savings worth more
than £23,250 (including the value of their home
unless their partner or a dependant lives there) is
required to fund their own care entirely.
1
But the situation is complicated by the distinction
made in the rules between social care and healthcare
needs – an artificial distinction, according to former
pensions minister Ros Altmann
2
. She neatly summed
up the incongruities of the current system by citing
the example of a millionaire with cancer who would
be entitled to have all their care paid for by
taxpayers; while an older person with dementia and
a home worth £250,000 ‘would have to pay for all
their care until most of their house value was gone’.
Many commentators have called for a cross-party
commission to find a long-term balance between
state support and personal contributions for long-
term care.This might take the form of a protected
‘ceiling’ of the value of an individual’s total assets,
above which they have to pay for care, as is in effect
the case at present; or a lifetime limit on contributions,
as suggested by Fairer Care Funding, the Dilnot
Commission’s report in 2011; or even a capped
time period after which the state would step in.
Whatever is decided nationally, individuals should
make provision for future care needs a central
consideration in their retirement planning.
Many elderly people, of course, manage in their
own homes, supported by family and friends or
formalised care visits. But if they can no longer
cope at home, a care home will cost, on average, a
little more than £30,000 a year for residential care
3
;
if nursing care is needed, costs will be even higher.
Faith Glasgow is Editor of
Money Observer
As things stand, anyonewith
savings worthmore than
£23,250 is required to fund
their own care entirely