Health check

The Dilnot report of July 2011 has put back into the spotlight the question of who should fund long-term care. Global insurance company Aviva’s seventh Real Retirement Report has taken a closer look at this issue to establish how the current over-55 population feel about the impact of the proposed reforms.

Cost estimate

While over-55s estimate that it is likely to cost £30,171 per year to cover standard care in a retirement home, 70 per cent of people believe that in an ideal world they shouldn’t pay for care at all. While it is obviously not good news that the majority of people believe the state should fund later-life care, the fact that they are quite realistic about the actual cost is a good sign.

However, despite this realism, even those who felt they should make some contribution believe that they should contribute a total of just £3,610 towards the cost of their care during their later years. Over-75s – who are more likely to have had some experience of the care system – believe they should contribute the most (£4,828), followed by 55-64s (£3,992) and 65-74s (£2,802).

While over-55s would prefer to not pay for care, the majority do concede that this is unlikely to be possible. Their preferred choices would therefore be partially funded by government spending with the better-off contributing to costs (51 per cent) or partially funded by the state but with the majority of costs being paid by an individual and their family (19 per cent). Only three per cent of over-55s fully expect to totally fund their own care.

In addition, 36 per cent believe that if you can afford to contribute to the cost of your care then you should. What this contribution should be was a matter for debate – 14 per cent felt it should be based on lifetime income and 16 per cent suggested it should be based on current assets.

House arrest

With homes being the largest asset of the majority of over-55s (average value £227,448), the role that housing equity plays in paying for care is a topic that is often discussed. However, 62 per cent of over-55s feel that they should not be forced to sell their house to pay for their care. The retiring (68 per cent) were the most averse to seeing their homes sold to pay for care compared to the pre-retirees (58 per cent) and the long-term retired (60 per cent).

There are lots of different opinions ?as to how care should be funded, but ?one clear message from the research was that the over-55s believe finding information on this topic is difficult. Indeed, 47 per cent said there needs to be clearer information and 36 per cent felt it would clear up confusion if one government department was responsible for all care issues.

This fact was evident when people were asked how they would find information on this issue. Almost half of over-55s (48 per cent) would consult the state in one form or another for advice on care – 18 per cent government directly, 16 per cent local council and 14 per cent a medical professional. Others would turn to the private sector, with 11 per cent speaking to a financial adviser and five per cent looking to a financial services company for help.

With most over-55s aware that they are likely to need to pay for some portion of their care, they were asked how they felt generally about long-term care costs. The highest percentage (41 per cent) said they felt concerned and realised they would need to be careful with their finances if they were to meet the costs.

A further 14 per cent felt that they would need to ‘scrimp’ to meet the costs, 15 per cent said they were worried as they did not feel they would be able to meet the costs and 12 per cent confessed to being terrified about the prospect. Worries about not being able to meet the costs were highest among the over-75s (18 per cent) who are least likely to be able to boost their income.

Despite the cost of care being at the forefront of many people’s minds, only one in five (19 per cent) cited this as their main concern about going into care. Instead, over a quarter (27 per cent) felt that becoming frail and being forced to rely on others was a significant concern, as was the loss of independence (23 per cent) that came with needing care. Women (20 per cent) were substantially more worried about the quality of care than men (12 per cent). Conversely, men (23 per cent) were more worried about the cost of care than women (13 per cent).

The majority of over-55s (53 per cent) wanted to remain in their homes for as long as possible. Almost a third (31 per cent) said they would prefer care at home until medical issues mean they need to go into a home, and 22 per cent would like care at home until they need to go into a hospice/hospital. Even the alternative options, sheltered accommodation (17 per cent) and a retirement community with some access to medical care (19 per cent) allowed them to maintain their independence.

Purse strings

The main reason behind an overall apprehension of long-term care appears to be due to the fact that over half (53 per cent) have no plan in place to meet these costs. Indeed, just two per cent of over-55s say they have long-term care insurance, with others preferring to rely on savings and investments (13 per cent), releasing equity (nine per cent), their pension fund (three per cent) and on family assistance (three per cent).

However, with the average cost of residential care hitting £25,953 per year and the average over-55 having just £10,468 in savings (as at September 2011) and an annual income of £1,216 per month (September 2011) – the maths does not add up and there is sure to be a shortfall for many.

“Long-term care is often an immediate needs purchase so it is vital that clear and consistent information is easily available. Unfortunately, this is simply not the case at the moment and people in this situation often don’t fully understand their rights or what they are entitled to. As a country, we need to seriously look at how we fund care but also how accessible it is to people who need it,” says Jonathan Bruce, managing director of Prestige Nursing + Care.

“How to meet long-term care fees in retirement is a problem that financial service companies are actively considering. This issue is made particularly challenging by the fact that the actual cost of care is only determined when it is needed rather than when it is planned for and a funding product is chosen. However, the proposals in the Dilnot review mean that going forward there is potential for much greater clarity around costs and thus it will be easier for consumers – and companies – to plan for the future.” n

Clive Bolton is the ‘at retirement’ director for global insurance company Aviva. For the full Real Retirement Report see https://www.aviva.com/media/news/uk/