Families’ Fees Nightmare Is Likely To Be Very Long-Term
June Whitworth, from North Somerset, and her family faced a problem familiar to thousands of people across the UK when her 88-year-old father-in-law needed residential care: how to pay for it. “The fact that people are living so much longer means that although they might not have much specifically wrong with their health they can find it difficult to do some of the things that they used to do,” says Whitworth. “When my father-in-law decided he needed to go into a care home we got advice about what was the best option.”
On the recommendation of PSFM, the independent investment adviser, Mr Whitworth decided that an “immediate needs” annuity was the best option to cover the cost of care. “Paying a one-off high charge for cover for the rest of his life was a gamble because he didn’t know how long he might live,” says Ms Whitworth. “But it gave him and us the reassurance that the cost of care would be covered for the rest of his life.”
Caring for the oldest and frailest members of society is a massive, and growing, burden. Personal social care services cost local authorities some £8bn in 2004-05 and another £3.7bn went out in non-means tested benefits for older people with disabilities. On top of that are the costs that individual families have to bear, which have reached an estimated £3.5bn.
The average cost of going into a care home now works out at £22,256 a year and an individual’s life savings of £100,000 can easily be used up in providing just four years of long-term care. Only people with assets of less than £11,750 can obtain full funding from their local social services department and those whose assets total more than £19,000 must normally meet the full costs of care out of their own pockets.
“The days of being supported by the state from cradle to grave are over and under current legislation local councils can force people to sell their home in order to pay the bills,” says David Lamb, marketing director at St James’ Place Capital.
He says that the soaring cost of care means increasingly extreme measures – such as selling off the family home or asking the wider family for financial support – are commonplace.
“The risk of losing the family home to pay for long-term care is far greater than through inheritance tax for most people,” says Sarah Windsor-Lewis at PSFM. “With the proportion of the population aged 80 and over expected to grow to 3.2m by 2020, the possibility of needing special care or help during the later stages of life is becoming a very real issue for most people.”
Lamb says the problem can only get worse over time because the UK, in common with most other countries, has an ageing population. The proportion of people aged over 65 is projected to increase from 16 per cent in 2004 to 23 per cent by 2031, according to the Office of National Statistics, which currently compiles figures for the Government Actuary Department.
“This is an inevitable consequence of the age structure of the population alive today, in particular the ageing of the large numbers of people born after the second world war and during the 1960s baby boom,” says a spokesman for the ONS.
Trends differ for the four countries of the UK. The population of Scotland is projected to increase slightly until the year 2019 and then start to fall. The population of Northern Ireland is projected to continue growing until the early 2030s and then start to fall; and the population of Wales is projected to continue increasing beyond 2031 but at a very low rate. The population in England is also projected to continue rising but more strongly.
The ONS predicts that as a result of the spiralling numbers of old people, “demographic support ratios” – the number of young people needed to support those of pensionable age – will fall. In 2004, there were 3.33 people of working age for every person of state pensionable age. This ratio is projected to fall to 2.62 by 2031.
The problem for many pensioners is that while residential care home fees have increased by 51.5 per cent since 2000-01, the basic state pension has risen by less than half that amount, according to a report by Help the Aged. With another raft of care home fee increases due by the end of this month, some as high as 25 per cent on last year’s, those having to meet their own care costs could struggle to bridge the financial gap, it said.
With a resident’s annual income typically amounting to £7,418 and made up of the state pension, the attendance allowance – a tax-free benefit for disabled people over 65 who need help with personal care – and private pension, this means a shortfall of £13,694 which must be met from a resident’s savings.
But the situation is different for pensioners around the UK. Scotland provides free long-term care, including help with washing, dressing and eating – which are defined as “personal care” – for all older people. In England and Wales, nursing care (time spent by a qualified nurse on providing, delegating or supervising care), is partly funded, although personal care is not.
However, no-one is predicting that pensioners will start moving in droves up to Scotland to claim their free personal care.