Why do we ignore future care costs?
PUBLISHED: 17:00 06 September 2019 | UPDATED: 17:00 06 September 2019
As life expectancy rises, so does the possibility of residential care, says financial guru Peter Sharkey.
It's reasonable to suggest that the deep chasm between public funding of social care and the increasing needs of an aging population looks set to widen to canyonesque proportions over the coming decades.
Whereas most people save towards a pension to provide for a comfortable retirement, it's a sad fact that only a small number are adequately prepared for potentially-enormous care costs in their later years.
Indeed, for people with a protracted need for care, the bill can grow to such a level it becomes unaffordable.
Arrangements for those seeking help with care costs have undergone several revisions over the last 20 years as life expectancy has risen dramatically. Presently, to qualify for financial assistance when moving into care, the level of a person's assets, an assessment which includes the family home, must first be reduced to £23,250.
The arithmetic is similar even if you require care at home. In such circumstances, your assets must be diminished to £23,250 (the level is established by your local authority), although this means-tested calculation does exclude the family home.
Government plans to set the level at which financial assistance would be triggered at a nominal £100,000 remain on the back burner. Nor has the likelihood of a cap on care costs moved any closer since the matter was last aired by the Government a couple of years ago. Mind you, they have had their hands rather full...
You need only spend a short time meandering through the ether to discover that responses to burgeoning later life care costs range from the naïve to the startling.
On the one hand, there's a sizeable proportion of people who have adopted an 'it'll never happen to me' approach, while others insist that if they do require care, they'll die suddenly, or relatively quickly, before they've run up a massive bill.
At the other extreme, many people advocate the 'quick pill' solution, while on another website one man wrote: "[My long-term care plan] is to take out the worst criminal in the area, own up to the deed and retire to a quiet but secure state-run retirement home with three meals, entertainment, company, free TV, healthcare and all the rest."
According to a survey produced for the Association of British Insurers (ABI) earlier this year, almost 90% of UK adults have made no provision to cover the cost of care, even though the majority of people who require later life care must fund it themselves, at least to some degree.
More than half of those surveyed by the ABI believe their state pension, worth around £170 a week, is the most likely source of income for funding care costs. However, it's worth noting that average weekly care home fees are currently £689; if nursing care is required, the weekly cost rises to £851.
The ABI survey concluded with five proposals. These ranged from the suggested introduction of a 'Care ISA' to tax relief on pension income used to pay for care costs. Four of the proposals required legislation to become law; one, however, effectively exists already.
The ABI suggested that people aged 55 and over could be given the opportunity to release equity in their home to insure against care costs. "With no government intervention required through tax incentives, it may be possible that this proposal could be offered by providers now," says the ABI.
According to the latest annual figures, homeowners release around £40million from their homes to pay for care costs, a level which suggests that plenty of people have already recognised a potential future problem and done something about it.
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Equity release is not a panacea, nor is it the only option for funding care costs, but the process already exists; in other words, homeowners are not reliant upon fresh legislation to release a tax-free lump sum from their homes and use the funds however they wish.
Before taking matters any further, however, it would be prudent to speak with a qualified equity release adviser who can explain the advantages - and possible pitfalls - associated with the process of releasing equity from the home.
For further details, and to receive a FREE guide to equity release, phone 0800 612 6755 and quote reference LIFEM1, or email email@example.com
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For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.