Pensions World

The huge cost of funding long term care threatens a crisis even greater than the pensions shortfall, says editor Stephanie Hawthorne

In 1901 you could barely fill a football ground with the population of over-85s – there were just 61,000. In 2011 there are 1.5m and in 20 years there will be 2.5m. Yet, such is the disturbing quality of some social care for the elderly and the lack of funds to support it, extreme old age is no longer always a matter for celebration but sadly can be a case for commiseration.

Care homes where the word “care” is an oxymoron are the all too frequent stuff of horror stories in the national press. Basics that we all take for granted when we go on holiday such as bathrooms en suite are a rarity in the twilight world of old people’s homes. One of the problems is the acute lack of funding in the sector.

Old and broke

Who saves to provide for long term care in old age? Not a single person I know. Yet they are often shocked when they discover the scale of their financial liabilities at the point that they, or a family member, need care. Yet around one in ten people at age 65 face future lifetime care costs of more than £100,000. Half can expect care costs of up to £20,000 and only a quarter will need to spend very little on care over the rest of their lives.

Once people of any age enter the system, there is very limited information and advice available and it is often of poor quality. There is confusion about the role of benefits, the NHS and social care. People often struggle to find financial information and advice. There is also little information and advice specifically for carers.

To protect people from extreme care costs the thoughtful report Fairer Care Funding by the Commission on Funding of Care and Support, chaired by Andrew Dilnot, recommends that the lifetime contribution to adult social care costs that any individual needs to make should be capped at £35,000. The asset threshold for those in residential care beyond which no means tested help is given should increase from £23,250 to £100,000. If implemented, the proposals would cost the state around £1.7bn.

With a cap on costs individuals can expect to pay for residential care, it is much more likely that financial institutions will enter this unloved arena and provide insurance products that people can afford to buy such as disability linked annuities.

These work by reducing the income from an otherwise flat annuity (by say around 10%) but then doubling or trebling income at the point of developing a care need (eg failing three activities of daily living) or reaching 85. New products related to housing assets could be also developed. Critical illness cover or life insurance could be extended to include cover for care costs.

Implement Dilnot in full

Governments must work with financial providers to ensure the regulatory and fiscal environment is supportive and does not twist and turn with every change in electoral fortunes.

Unless the Commission’s recommendations are taken seriously, acted upon and not dismissed by politicians as being too hot to handle then, as Dr Ros Altmann says: “We face a care catastrophe that will make the pensions crisis look like a mini problem by comparison.”

But the concluding words belong to Andrew Dilnot: “The current system is confusing, unfair and unsustainable. People can’t protect themselves against the risk of very high care costs and risk losing all their assets, including their house. This problem will only get worse if left as it is, with the most vulnerable in our society being the ones to suffer.”

The government must implement Andrew Dilnot’s recommendations in full.