Over-55s increasing saving to pay for social care
Guest blogger Roger Marsden, head of retirement at Aviva, looks at the Government's plans for social care and the steps those nearing retirement are already taking to prepare.
It would be fair to say the release of the Government’s White Paper on Social Care has caused quite a stir in the media.
One of its key messages is that the Government wants to promote ‘prolonged independence’ and provide ‘more choice’ when it comes to the subject of care.
While the initial response has been mixed, its reception is not as important as the issues it’s aiming to address. These are that the UK has an ageing population, we are living longer in retirement than ever before, and the existing State pension and long-term care system is creaking.
Some steps have already been taken to address this, such as gradually increasing the State retirement age, (and thus the age when people are entitled to receive a pension), along with plans to equalise retirement ages for men and women. And with more immediate effect, the removal of the default retirement age means we will all have the potential to keep working for longer should we want or need to.
While these changes impact on how long we will continue to work and the age we retire, at the other end of the retirement spectrum is the issue of what happens if we should need long-term care.
What happens if we need care?
At present the State takes account of all of our assets above £23,000 and will use these to pay for long-term care should it be required.
However, there are many who do not have significant assets and would require State help for all their long-term care needs. As such, costs are escalating here too and the system is coming under severe pressure. The Office for Budget Responsibility pointed out how bad this is getting when it warned recently that care costs could cripple the State unless the Government is willing to impose further tax increases or spending cuts by 2017.
According to Aviva’s latest Real Retirement Report, those currently approaching retirement are the age group most likely to be affected, due to increased pressure on their finances and limited savings.
The average incomes of over-55s have only increased £122 in real terms (to £1,285 per month) since the beginning of 2010. Unsecured debts are rising too with the average over-55 with unsecured debts currently owing £22,401; a figure considerably higher than this time last year (£17,112).
However, at the same time the report also found that those approaching retirement are already making a concerted effort to save where possible. It found the average over-55 is currently sitting on a savings pot of around £15,756, and this is significantly higher than this time last year (£11,907).
And with inflation on a downward trend it is a good opportunity for those approaching retirement to try and pay down their debts wherever possible and to do as much as they can to secure the best income they can in retirement.
For the rest of us, the White Paper serves notice that the more prepared we can be for our retirement, the better placed we will be to meet the expenses encountered when we stop working. The ramifications of the Paper may not become clear for a long time yet, but that doesn’t mean we need to wait to start saving for later life in the meantime.
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