You'll have to pay for your own care in retirement!

by John Fitzsimons on 04 September 2011  |  7 comments
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Guest blogger Clive Bolton of Aviva looks at the care dilemma the over 55s face.

The economic crisis currently affecting global stock markets and international balance sheets is causing British politicians some considerable anxiety.

Not least because the decisions they make will have huge repercussions not just for the global economy but also in the domestic arena. After all, money spent in stabilising banking systems (and even entire countries) cannot be spent elsewhere. But the danger is that not to do so could make the domestic situation much worse in the long term.

Putting it off until tomorrow

It's against this backdrop the UK Government recently confirmed plans to delay a White Paper on care reform until next April. The White Paper was intended to discuss the recommendations made in the ‘Dilnot Report’, which was published in July and recommended a number of changes to the system of long-term care in the UK.

The Dilnot Report proposed capping the amount people pay for long-term care at £35,000, suggesting that thereafter extra costs should be covered by the State. It also proposed a separate cap of between £7,000 and £10,000 to cover accommodation and food fees, and a £100,000 asset threshold, under which individuals will not have to pay for their care.

At present the costs of long-term care are potentially unlimited, as the State is unlikely to help those requiring long-term care but who have assets greater than £23,250. This means that many people will need to liquidate some of their assets should they require this assistance.

The Dilnot Report predicted it would cost the Government an extra £1.7bn a year to introduce this scheme and replace the existing system, but following the delay of the White Paper, the author of the report Andrew Dilnot has voiced concerns the downturn in the global economy mean his proposals will now end up being sidelined.

Who should pay?

Aviva’s latest Real Retirement Report found the issue of who pays for long-term term care is not something that people are likely to forget. It discovered that 70% of over-55s do not feel that they should have to pay for care, and even among those who believe they should make some contribution, the average amount they would wish to pay towards the cost of care is just £3,610.

Current figures from Prestige Nursing + Care show the average cost of residential care is £25,953 per year and that people spend an average of four years in long-term care, so it is clear reality could come as a severe financial shock.

The 70% of over-55s who do not feel they should have to pay for care could well have been a higher figure, were it not for the current economic environment, which is leading to a growing acceptance among individuals that they are going to have to take more personal responsibility for funding their retirement and future care costs.

Indeed with the Dilnot Report predicting that one in four people will need care, this is an issue that will affect a significant number of people. Dilnot has proposed a ‘social insurance’ system that could potentially be funded through higher taxes, but if nothing comes of his proposals where does this leave people?

How will I pay?

The Aviva report found an overwhelming majority of the over-55s questioned (81%) say they are “worried, concerned or terrified about meeting care costs”. With just 2% of over-55s having long-term care insurance in place this is perhaps not surprising.

People are living ever longer in retirement and the pressure on care costs will continue to rise. As such people just cannot afford to adopt a wait and see attitude towards the cost of providing for themselves in later life. People need to plan ahead if they are to mitigate the costs at the point of needing care.

The most obvious solution is for people to save more for retirement and to begin saving earlier – which is often easier said than done! But what about those already aged over 55 who are just beginning to think about long-term care provision now? If there ends up being no change to the current system then the likelihood is that the over-55s will need to look to other assets such as savings, investments or housing equity in order to pay for the cost of long-term care.  In addition, over-55s will need to consider managing any debts they still have as they enter retirement, as well as later life career planning and the possibility of working for longer than they had intended, and of course, how best to stay in good health in their later years.

Clive Bolton is ‘at-retirement’ director at Aviva.