How does the conversation around care fit into wider retirement planning?
Due to an ageing population, increasing life expectancy, and existing care systems across the UK that are under incredible pressure, the challenge faced by central government, local authorities and the general public in respect of paying for care is becoming increasingly evident.
With a growing need for social care as our population ages (it is estimated that around 75 per cent of people will require some social care in their lifetimes. This percentage is predicted to rise as the UK continues to see a rapidly ageing population, with 10 per cent incurring costs of over £100,000), it seems inevitable that more of us will have to pay for some or all of our care. For most people, the biggest source of funding they have outside of their pension schemes remains their home and we are starting to see evidence of an important attitudinal shift by consumers increasingly willing to consider the use of property to fund their needs in later life.
When it comes to care, the vast majority of those in need do not know where to go for advice in trying to get answers to urgent questions: where they can find appropriate care of a good standard; will their local authority, the NHS or any other third party help pay for it; what about state benefits; and if they have to pay, what are their options? Many consumers do not appreciate the importance of taking regulated care funding advice, including the fact that only a regulated financial adviser with a designated care qualification can advise on all ways of paying for care. This is because one way (and for many the only way that guarantees payment of care fees for life) requires paying for a product called an Immediate (or deferred) Needs Care Annuity, the suitability of which can only be determined by a regulated financial adviser who has passed an exam on long-term care insurance recognised by the Financial Conduct Authority.
Whilst at the time of writing we await the outcome of the current government's considerations in respect of their 'fix' for the social care funding crisis, it seems more than likely that many will continue to have to pay something towards the cost of their care, especially given the challenge brought about by Coronavirus pandemic, which has compounded the issue. With property wealth rising among those in later life, it makes sense that this resource should form part of the conversation about meeting the pressing social and economic need to find a sustainable solution to funding long-term care.
Why is the care conversation relevant for financial advisers that operate in the later life lending / advice space?
In recent years, the increasing importance of residential property as an asset in later life has resulted in more focus being placed on later life lending, raising the question around how older borrowers are assisted in making choices about later life funding and the potential role that the increasing range of home finance and lending products can play.
It is relatively unsurprising that we have begun to see equity release being viewed as an important component to fund needs in later life. The Equity Release Council's research (‘Beyond Bricks and Mortar' June 2019) found 51% of homeowners aged 45+ saw money invested in property as part of their later life plans. Specifically, 37% of people aged 65+ saw the money invested in property as part of their plans to pay for care if needed. More research from Key supported this view, suggesting that the over-55s are now less confident in their provisions, are increasingly looking at property wealth as a major source of funding for care.
In the recent Equity Release Council paper entitled 'Solving the social care funding crisis: perspectives on the contribution of property wealth', Peter Barton, Partner and Head of Equity Release at solicitor firm Ashfords identified that care costs being used as a stated aim for loan usage has risen from 5% to 25% of all cases, as people seek to help spouses or want to pay to receive care in the familiar surroundings of their own home.
Whilst currently the percentage of Equity Release cases being directly used to fund care appears to be relatively small, there are indicators that this is increasing in line with an increasing cultural shift towards home care.