Why try harder?

The care sector is in a state of huge turmoil. The government, which has a duty to lead on social policy and implementation, has more or less washed its hands of the problem. It has taken the view that planning for and funding elderly care is the responsibility of the public and not the state.

Small wonder then that a recent report by Age UK found that over the last ten years, government spending on social care has dropped by £1.95bn; the social care budgets for 2015/16 will see a further reduction of £472m; and by 2020/21, providing care at the 2013/14 levels of eligibility will cost an extra £600m.

The report, 'Health and Care of Older People in England 2015',¹ also asserts: 'Disability-free life expectancy is rising more slowly than life expectancy… meaning that people are living for more years with disabilities'. Clearly, the need for care services will be felt more acutely in the near future.

The problem is compounded by the fact that insurance policy providers have largely withdrawn from this area of the market, instead choosing to focus their attention on those who need care now.

Alex Edmunds, head of retirement at Saga, spoke to PCA about what is available to those who are currently in work and, just as the government encourages, want to take responsibility for their later-life care.

'At the moment there aren't any insurance policies available for people to plan for their care but there used to be. So you could pay a regular premium or a lump sum in advance of needing care and then you could claim on them in the future to help towards your care costs. But they were all withdrawn from the market. Nobody is doing this at all.

'The main plans available for people covering their care costs are immediate needs annuities. They are for people at the point of needing care, however. This is somebody who has got a care need and they're probably already living in a care home - they spend a lump sum in order to get an income for life.'

Although an immediate needs annuity will cover the cost of care and provide an income, it doesn't come cheap. The lump sum is likely to be in access of £100,000, Edmunds says, and there is a further sting in the tail.

'If you buy one of these immediate needs annuities, the money's spent and it's gone. You don't get any of that capital back on death. It just comes back as an income over time,' she concludes.

An uncoordinated mess

In the Autumn Statement delivered on 25 November 2015, George Osborne gave local authorities the power to increase council tax by two per cent specifically to fund care services, which he said would inject £2bn into the care sector.

The King's Fund think tank quickly disproved this. After conducting their own research, they found that the tax increase is only likely to raise around £800m.

This type of short-term outlook is endemic in all of the stakeholders in elderly care, laments Rebecca Taylor, a financial planner and managing director of Aurea Financial Planning.

'The biggest problem is getting all of the stakeholders to work together - having everyone take ownership for their part in the solution. Everything is short term as opposed to long term.

'Savers are thinking short term for things they can do in the immediate future and things that will definitely happen. The government can only see to the end of their term in office. That's not to be dismissive of politicians; realistically you don't do something that might be unpopular because you can only look five years into the future. Insurance companies have to make a profit, they are commercial organisations. It's about getting everyone together.'

Like Edmunds, she also highlights that there is not enough available by way of insurance and saving mechanisms for those looking to plan for their care needs now. Furthermore, Taylor adds that it's difficult enough to convince people to build up retirement savings, which is something the majority of the public are likely to need.

'In all honesty, how many 20 and 30-year-olds are you going to find who are going to pay a premium for something that may or may not happen?

'There is always something more important to spend the money on. It's difficult enough for people to save for retirement at that age, let alone something later than that, which statistically may not happen.'

New thinking is what's required

The inescapable reality of elderly care is that it is expensive. Residential care homes charge in the region of £30,000 a year. Where nursing is required, this can rise to around £40,000. What's important to note is that the majority of these costs cover accommodation and only a small part is allocated to covering the cost of care. More often than not, residents only receive around two or three hours of attention per day.

A new breed of care providers has started to challenge this model by taking out the need for a care home completely; they provide care at the elderly person's home. With costs of around £800 to £1000-a-week, they charge roughly the same as traditional residential care homes.

Where they differ is that the person in need of care receives value for money says Dominique Kent, as their needs are met by a carer who stays with them at their home throughout the day. Kent is director of operations at the Good Care Group, which is part of this new breed of care service providers.

'So while the process is the same in terms of understanding needs, the delivery of the care, and it's not just care, carers provide support with the cooking, cleaning, housework and whatever it might be that is involved in managing a home.'

In the case where there's more than one person living under the same roof, traditionally two separate care home fees would have to be paid for each individual - this is not the case with the Good Care Group.

'Of course for couples, it's very cost-effective because in a care home, you're paying two fees whereas in their home, there's no extra charge.

'Most of us charge a very small amount if it's a couple, so it's about five or ten per cent extra.

Grey clouds ahead

Although the Good Care Group's efforts in delivering better value are welcome, they are part of the solution and can't solve the sector's problems singlehandedly. The £800 to £1,000 fee they charge needs to come from somewhere.

A combination of a government led austerity drive that has entered its sixth year, a population unwilling to save for something that may be required in the distant future, and a lack of options in the marketplace for would-be savers has left us with a ticking time bomb.

In an age where consumers are able to satisfy their next craving with a simple Google-search (whether that's a new phone, a take-away meal or anything in-between) short-termism is a problem that many will find difficult to rid themselves of.

Unless the private sector is incentivised to re-enter this market, society will continue to sit on a conveyor belt idly heading into a stage of their lives where they can expect little to no help from the state. Massive costs will inevitably render plans to leave money to the next generation abandoned, who will in turn find themselves with little money to put aside for their old age, thus forcing them to repeat the cycle of fulfilling their short-term needs and neglecting the future. 

References

1. See Age UK's report

Binyamin Ali is the editor of Private Client Adviser